WEBVTT

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<v 0>We have a worry about Canada that concerns the structure of our mortgage market.</v>

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Canada has short mortgage terms of mostly five years and less,

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with 25-year amortizations that are due in payable when their term ends.

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Canadian mortgages also have prepayment penalties.

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Even if a Canadian homeowner locked in the lowest 5-year mortgage rate of 1.4%

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available in December 2020,

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they would get refinanced at 4.8% if current rates hold into 2025.

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That's quite the shock.

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We all have read that Canadians are some of the most indebted consumers in the

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world. A large part of that debt is residential mortgages,

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and that finances much of our Canadian wealth, which is tied up in our houses.

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Household real estate assets are close to 300% of Canadian GDP compared

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to under 200% in the U.S. In contrast,

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the U.S. has mostly securitized 25-year term mortgages that have no prepayment

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penalties,

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so there is an incentive to refinance if mortgage rates decline.
American

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mortgage brokers have taught their clients to renew when mortgage rates fall,

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and very few mortgages aren't refinanced when it is attractive to do so.

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That means many,

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if not most U.S. homeowners have mortgages they locked in at the very low rates

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during the pandemic, 2% to 3% below where they currently are.

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American homeowners have a financial windfall compared to their Canadian

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neighbours. That's why the U.S. housing market is very slow,

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and prices might be staying high as homeowners can't port their mortgage

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windfalls to new properties,

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and prospective purchasers confront mortgage rates far higher for properties of

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the few sellers who must sell for non-financial reasons like employment,

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divorce, or debt.