Canada’s sluggish housing market weighs on Home Capital’s loans

(Bloomberg) — The turmoil in the Canadian housing market is starting to hit lenders, with Home Capital Group reporting a sharp drop in loan volumes in the third quarter.

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Home Capital, which primarily lends to borrowers considered slightly riskier than its main clients, said Tuesday single-family mortgage originations plunged 28% year-on-year. Lenders’ so-called Alt-A borrowers include those who are self-employed or who are new to Canada and do not have an extensive credit history. Total mortgage originations fell 23% to his C$1.85 billion ($1.38 billion), a projection by Royal Bank of Canada analyst Jeffrey Kwan, where he fell to C$2.5 billion. fell below the dollar.

Transactions in September fell 32% year-on-year as sales activity slowed in the Canadian housing market and the Bank of Canada’s aggressive rate hike campaign pushed up mortgage costs. Prices have fallen for the seventh month in a row, down nearly 9% from their peak.

The market spiral has yet to be reflected in lender results, with all major Canadian banks reporting mortgage growth in recent earnings. Home Capital’s results provide a window into a segment of borrowers considered riskier than the big banks typically underwrite, thus paying more to borrow.

“The housing market is currently in a period of transition as buyers and sellers adjust to a higher interest rate environment,” Home Capital CEO Yousley Visada said in a statement, adding that the Toronto-based firm has “We are looking forward to a softer market environment,” he added. be sustained in the short term. “

Lower originations pushed Home Capital’s net income down 43% to C$31 million, or 77 cents per share. Excluding some items, earnings were 95 cents a share, in line with analyst expectations.

Home Capital’s stock fell 4.8% to C$25.23 at 10:32 am in Toronto, down 35% this year. This is his fourth worst performance in the S&P/TSX Financials Index of 29 companies.

Despite market turmoil, Home Capital borrowers continue to make mortgage payments. Net bad debt accounted for his 0.16% of gross loans in the last quarter. This compares with 0.15% in the same period last year and 0.47% in the same period in 2020.

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