Home buyers in Canada recently received good news from the Canadian Mortgage and Housing Corporation (CMHC). As of April 22, 2005 CMHC has lowered its mortgage insurance premiums for high-ratio mortgages by 15%. This is the second such reduction in the last 2 years. This reduction applies to purchases that have closed on or after April 22, where the down payment is less than 10%. The savings amount to $500 for every $100,000 of CMHC insured mortgage.
During a transition period of approximately 6 months purchasers will receive a refund directly from CMHC (by mail) equal to the new reduction. After the transition period the reduction will be applied at the time of mortgage application.
This is welcome news for first time buyers, when rising real estate prices are making the first step towards home ownership difficult. Historically low mortgage interest rates in the last three years have allowed more Canadians to qualify for a mortgage and forgo renting or staying at their parent's home.
If we follow the Canadian mortgage interest rates in the last 50+ years, we cannot fail to notice that we are presently enjoying mortgage rates at the levels last seen in 1953-1955. After 1955 the rates gradually increased for five years, and then levelled off and remained stable until 1965. Thereafter wild fluctuations occured both in real estate prices and mortgage rates, culminating in 18% mortgage rates in 1981, and exceptionally high average house prices in 1989.
After 1989 the average real estate prices dropped dramatically, and mortgage rates followed.
The following graph, showing the 5-year mortgage rates since 1953, is based on data provided by Canada Mortgage and Housing Corporation.
For comparison, see below Toronto real estate prices corrected for inflation.
Next graph, courtesy of Elmar Moser, Sutton-Granite Hill Realty Inc., shows housing affordability in Canada, based on data provided by RBC Financial Group.
It is not possible to predict the future accurately, but available data indicates that the conditions before the real estate market crash of 1989 are not present at this time.
