Housing market flashing 'encouraging signs,' Home Capital CEO says

The chief executive of Home Capital Group Inc. says the housing market has been flashing some positive signals lately, especially in the Greater Toronto Area.

During a conference call to discuss their results for the quarter ended June 30, Home Capital CEO Yousry Bissada said Wednesday that the mortgage lender “saw some encouraging signs from the housing market.”

“Sales activity is picking up, with particular strength in the GTA,” Bissada told analysts. “The latest data on economic growth, employment and interest rate expectations are consistent with our outlook for a stable and balanced real estate market for the rest of 2019.”

The comments came after Toronto-based Home Capital reported a profit of $31.9 million for its second quarter, up from $29.6 million a year ago.

Earnings per share rocketed past last year’s numbers, aided by a stock buyback that began in January. As of Aug. 2, the company said it had repurchased approximately 3.5 million shares out of a possible 4.75 million, and noted it intends on buying back the remainder as well.

Home Capital’s adjusted earnings per share were 58 cents for the second quarter, up from 37 cents last year, beating analysts’ expectations. The lender’s stock price finished Wednesday about 0.6 per cent lower, at $23.37, but its shares are still up more than 60 per cent since the end of 2018.

Mortgage originations, Home Capital said, rose to $1.28 billion for the period, an increase over $1.23 billion for the same quarter of 2018. Total loans at the end of the quarter were up one per cent over the prior quarter and nine per cent from a year ago, increasing to $16.84 billion.

A note on the quarter by BMO Capital Markets analyst Nik Priebe said “loan growth looks a bit muted, but credit performance was stable.”

The growth at Home Capital comes after Canada’s housing market cooled in the wake of regulators and government enacting a variety of measures, including a stress test for uninsured mortgages that came into effect at the start of 2018.

The results from Home Capital also came a day after the Toronto Real Estate Board reported sales in the GTA had risen by 24.3 per cent in July compared to a year earlier.

While activity in the Vancouver market has been weaker, Home Capital said in its financial filings that “the Company does not expect the recent decline in prices and sales volume in the Vancouver real estate market to have a material impact on the Company’s business.”

According to Bissada, Home Capital’s single-family orIginations grew by more than 10 per cent year over year, “with particular strength in our alternative mortgage segment.”

Bissada, though, drew a distinction between Home Capital’s alternative lending — which he said referred to their “target market” of loans compliant with B-20, the guideline for federally-regulated financial institutions that includes the stress test — from that of mortgage investment companies and private lenders.

The latter are not subject to B-20 rules, but appear to have gained market share since stricter underwriting regulations came into effect for federally-regulated entities, such as Home Capital subsidiary Home Trust.

A Bank of Canada report from last November, for instance, found the volume of new mortgage lending in the GTA had fallen for all lenders in the second quarter of 2018, albeit less so for private ones, helping to increase their market share to 8.7 per cent from 5.9 per cent.

“We’re pleased with our results because they’re beginning to reflect the impact of some initiatives that we at Home Capital have been working very hard at for the past few quarters,” Bissada said. “Our focus on lending to the high-quality market segments we have targeted, primarily the business for self-borrower and the new Canadian, is producing good results.”

Original Article by Geoff Zochodne - Vancouver Sun

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