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Falling interest rates are fuelling a sharp rebound in shares of Real Matters Inc., helping the Canadian company shake off a harsh slump following its initial public offering.

After its highly anticipated IPO in 2017, Real Matters’s share price plunged during its first 18 months of trading on the Toronto Stock Exchange. The Markham, Ont.-based company specializes in mortgage appraisal and title services for the U.S. real estate market, but at the time rising interest rates there were hurting mortgage growth, which meant new business was drying up.

Since hitting its market low in November, 2018, however, the company’s stock price more than tripled. After closing at $11.28 on Friday, the shares are finally approaching their $13 IPO price.

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Oddly enough, Real Matters has a cooling global economy and U.S. President Donald Trump’s trade war to thank. The U.S. Federal Reserve has cut its benchmark rate twice in 2019 to help spur growth, and declining bond yields have helped to send the average 30-year fixed rate mortgage in the United States back down to 3.75 per cent, according to the Federal Reserve Bank of St. Louis.

A year ago, the average 30-year rate had climbed to 4.9 per cent, its highest level since 2011. (U.S. mortgages are typically locked in for 30 years.)

The drop has spurred a surge in American mortgage applications and refinancing requests, sending U.S. banks scrambling to keep up with demand.

Real Matters has also been increasing its share of business from Tier 1 U.S. mortgage lenders. Unlike the Canadian market, where banks tend to use their own appraisers, U.S. banks are more prone to outsource the work to companies such as Real Matters. The Canadian company this year became an approved vendor for a fifth Tier 1 U.S. bank.

“Real Matters has had gains from a market share perspective as well as its larger customers garnering an increasing share of volume in its own markets,” National Bank Financial analyst Richard Tse wrote in a note to clients last week.

“While the stock has had a dramatic turn in 2019 from 2018, we think there could still be more upside in the short term,” he added, noting that investors have had low expectations about the strength of the recent growth in the U.S. mortgage market.

A year ago, Real Matters’ outlook could hardly have been different. The company was struggling with a weak mortgage market, shrinking market share for Tier 1 banks relative to non-bank lenders and slow growth in its title business, which specializes in title searches that ensure there are no problems such as unpaid taxes on a property, as well as connecting customers to closing agents.

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This year, rates have fixed the mortgage market, Real Matters is earning more business from Tier 1 banks and its title division has improved, largely thanks to mortgage re-financings. During the most recent quarter, Real Matters’ revenue from its title unit jumped 52 per cent to US$23-million over the same period in 2018.

The company has set a goal of boosting its market share in title services to 1 to 3 per cent of the U.S. market by September, 2021, and increasing its market share in U.S. appraisals to 15 to 20 per cent by the same date. In fiscal 2018, its market share for these two businesses was 0.6 per cent and 9 per cent, respectively.

Real Matters declined to comment for this story, but during its past quarterly conference call, chief executive officer Jason Smith told analysts that the company benefits when there is a sudden surge of mortgage activity, relative to competitors, because it runs a network model of contract appraisers and closing agents.

“We don’t use staff appraisers, which are very difficult to scale when there are big moves in refinance volumes,” he said, “so our model really shines.”

Editor’s note: An earlier version of this story suggested Real Matters had lost market share among Tier 1 banks. The story has been updated to note that Tier 1 banks had lost market share relative to non-bank lenders.

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