If homeownership is the American Dream, perhaps the Canadian Dream is mortgage-free homeownership. A survey by Forum research in 2012 found that 47 per cent of Canadian homeowners are mortgage-free.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) says in a recent report , "Our survey results have consistently shown a strong desire and intention among Canadians to pay off their mortgages more quickly than their original amortization periods. Data suggests that Canadians may choose a longer amortization in order to maintain a current standard of living and provide them with a buffer should their financial situation change, however most do so with very real intentions of paying their mortgages off more quickly."
CAAMP says that on average, "mortgages that have been paid off in the past four years were done so a full five years earlier than the original amortization period. Among those who have a mortgage currently, the average homeowner intends to pay off their mortgage more than eight years quicker than the original contracted period."
With the Canadian homeownership rate at close to 70 per cent (it was 68.4 per cent in 2006), a lot of real estate equity has been accumulated. CAAMP says the average Canadian holds a 70 per cent equity stake in their home, compared to 45 per cent held by the average American homeowner.
Canadians' conservative approach to borrowing and the amount of equity they are building are often cited as the major reasons why Canada won't have a real estate crash like the United States. While the U.S. saw a prolonged real estate slump and shrinking values, Canadian real estate prices continued to rise until the middle of 2012. At that point the federal government, concerned that Canadians were amassing too much debt, instituted tougher new mortgage qualification rules.
This brought an end to rapidly rising prices in the country's major cities, particularly Vancouver and Toronto, but in the long term most analysts believe the Canadian real estate market will have a "soft landing" and stabilize.
CAAMP says in its report that the Canadian real estate and mortgage markets have been under intense scrutiny and speculation in the media during the last several years. "Often this attention has been negative and full of predictions of housing bubbles and crashing markets."
So the association is not surprised that while 83 per cent of mortgage holders say they are comfortable with the loan-to-value ratio of their mortgages, 89 per cent of them also say they think Canadians overall have too much debt. The mortgage holders say they have no regrets about taking on the size of the mortgage they did (74 per cent) and that they will be well-positioned to weather a housing downturn (70 per cent.) However, 77 per cent also say that "many Canadians own homes who probably should not".
"These are stark contrasts, and paint a picture of Canadians who are financially comfortable, yet concerned that their neighbours may not have made prudent decisions and may not be in a position to weather a potentially rocky road," says the report.
The Forum Research study found that the wealthier you are, the more likely you are to have a mortgage. Sixty-two per cent of survey respondents with a household income of more than $100,000 had a mortgage, while only 36 per cent of those making less than $20,000 a year had one.
A separate Forum survey shows that almost half of Canadians believe house prices will continue to rise in the next two years. "Despite the dire predictions of the real estate Cassandras, Canadians seem to be happy overall with the housing market, and confident it will continue to make returns on investment," says Forum Research president Lorne Bozinoff.
However, a research paper by Chris Buttigieg, senior manager of the BMO Retirement Institute, says that Canadians should not allow their love affair with real estate to keep them from diversifying into other traditional savings options.
"While Canadians have enjoyed a stable housing market and increased home values, this should not reduce the role that personal savings play in retirement preparedness," says Buttigieg. "When and if the time comes that a home is going to be sold to fund retirement needs, housing prices may be lower than expected. If home values were to decline over the next 20 years, for either demographic or economic reasons, so would home equity - and the retirement savings of many boomers."
In contrast to those who have paid off their mortgages, Buttigieg says 43 per cent of pre-retirees are carrying a mortgage and almost one in five expect to continue carrying a mortgage after they retire.
Buttigieg says the Baby Boomers' consumption habits have driven housing demand and prices, "often resulting in an enhanced feeling of financial security."
"Boomers should weigh their unique circumstances and let those circumstances dictate how much debt they can realistically assume, as their retirement will bear the consequences of those financial decisions."
He says: "The old adage, 'Don't put all your eggs in one basket,' is wise advice."