Thanks to Zerodown for forwarding ‘Canadian Housing & Mortgage Industry, Highlights from Meetings Discussing the Canadian Housing and Mortgage Market’, a research document from RBC Capital Markets, authored by Geoffrey Kwan and Sean Adamick [RBC, 29 Jun 2012]. Excerpts:
“We had meetings this week with senior management teams from across the Canadian housing and mortgage market, including banks (Scotiabank), non-bank lenders (Home Capital Group, First National Financial, Equitable Group), mortgage insurers (Genworth Canada, Canada Guaranty), condo developers (Tridel), real estate investment firms (Tricon Capital), real estate consultants (RealNet) and housing economists (RBC Economics).”
“Key meeting highlights include:
• Canadian government changes to mortgage insurance rules and OSFI final mortgage underwriting guidelines announced last week were generally viewed as prudent, but unlikely to cause a housing downturn.
• Housing is already slowing in Canada with certain markets moderating earlier than others (e.g., Vancouver has been moderating for many months whereas Toronto more recently is showing signs of cooling) with general expectations that housing going forward is likely to continue moderating but that a housing downturn scenario appears unlikely for now.
• Key risks to the housing market include: (1) declining consumer confidence; (2) rising unemployment; (3) within the condo market, a surge of supply into the market; (4) deteriorating global macro developments; and to a lesser extent in the near term (5) rising interest rates.
• Toronto and Vancouver housing markets are overvalued with some suggesting the degree of overvaluation to be about 10%–15%.
• Lenders have tightened mortgage loan underwriting (beyond what was required due to mortgage insurance rule changes) likely reflecting the more uncertain macro environment and OSFI’s new mortgage underwriting guidelines.”
Some (excerpted) entity specifics of possible interest:
– Condo exposure in Canada is $13 billion.
– A stressed housing scenario is unlikely to be a significant credit issue for Scotiabank’s mortgage loan book, but potentially could be meaningful for other parts of the bank’s loan book. Small business owners tend to be relatively more resilient, but credit card loans are where there would likely be relatively higher losses.
– Loan loss provisions are low at 0.01% of loans.
2. RBC Economics
– See strong immigration going forward to help housing demand.
3. Genworth MI Canada
– MIC estimates that the high LTV market is about 35% to 40% of the market, having peaked closer to 45% during the current housing cycle and might have bottomed at 30% during the recent downturn in late 2008/early 2009.
4. Tricon Capital (North American real estate investor and asset manager [primarily multi-unit/condos in Canada])
– Tricon is cautious on the Toronto and Vancouver condo markets (only 3 deals done in Toronto since 2007/2008).
– The company sees much better investment opportunities in U.S. housing vs. Canada on a risk-adjusted basis.