From today's Financial PostHousing’s bottom is in sight: lender
HOME CAPITAL
But economists say the market
is still falling
Canada’s big banks may be hurting from the reduced demand for newmortgages, but at least one alternative lender says it sees a bottomingin the housing market and is benefitting enormously from it.
“Demand has begun to surface,” said Gerald Soloway, chief executive ofTorontobased Home Capital Group Inc., one of a handful of alternativemortgage lenders that remain after the U.S. subprime meltdownsideswiped more than a dozen competitors in Canada over the past year.
“We’re starting to see it across the country.”
Led by the western provinces, home prices have dropped by double-digits in many major markets year over year.
Such sharp price declines have brought buyers back into the alternativemarket and a degree of “stability,” Mr. Soloway said in an interviewyesterday after Home Capital reported a 20% increase in fourth-quarternet earnings, to $29-million.
The lender has backed up its optimism with action.
Confident that buyers are returning, Home Capital has begun tearingdown the tighter restrictions it erected in the fall of 2007, as thecredit crunch gathered force. “We have cautiously begun lending again,”the CEO said.
A price decline in the order of between 12% and 15% yearover-year isHome Capital’s tipping point. If the price has fallen within thatrange, the lender offers mortgages of up to 75% on uninsured mortgages.
That stands in contrast to the company’sposition a few months ago, when Home Capital — like other alternativelenders caught in the throes of the financial crisis — would barelybudge for borrowers who possessed as much as a 40% down payment.
Still, while Home Capital says it is seeing are-emergence among borrowers in the alternative market, which amountsto about 20% of all outstanding mortgages in Canada at present, there’salmost universal acceptance among economists that the overall housingmarket is still falling.
“Our sense is that the Canadian housing marketwill remain under pressure for most of this year,” said Sal Guatieri, asenior economist at BMO Capital Markets.
“It’s not just a question of affordability anylonger because of lower prices [and] lower mortgage rates. That’s notthe issue.
“What is the issue is the recession, which appears to be deepening.”
At least another 150,000 jobs could be purged from payrolls this year,Mr. Guatieri said. “It’s not the type of environment that encouragesthe purchase of big-ticket items, especially homes.”