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It's tempting to assume the worst about Canada's deteriorating housing market given the steeper-than-expected drop in housing starts and employment numbers for January released Friday. But another overlooked report from earlier this week bolsters hopes that it's heading for a soft landing and not something more severe.
On Wednesday, Genworth MI Canada (GMIC) – the largest private mortgage insurance company in Canada, second only to the government-owned Canadian Mortgage and Housing Corp. – reported fourth-quarter earnings that indicate two things: yes, the business is slowing down; but no, the outlook isn't all that alarming.
GMIC, which has about a 30-per-cent market share in Canada, reported a year-over-year 5.3-per-cent drop in fourth-quarter net premiums written and forecast a 15-per-cent drop for this year from 2012 levels. That's consistent with a slowdown in sales figures and forecasts we've seen reported recently.
But alongside that, GMIC chairman and CEO Brian Hurley told analysts that "overall borrower quality has improved for the market" thanks to Ottawa's interventions to tighten borrowing conditions, meaning "our most recent books of business should perform well. Our profile of borrowers who are buying homes is very strong, and these home buyers are well positioned to stay in their homes when we encounter an increasing rate environment."
That is exactly what you want to see as the housing market is peaking: not a fresh arrival of hot money levered to the limit buying homes for short-term gains, but rather a smaller, more prudent complement of long-term buyers who won't spark a disorderly exit if economic conditions worsen.
More encouraging are two other data points from GMIC: loan claims resulted in a loss ratio of 31 per cent, which is better than the company's target range of 35 to 40 per cent; next year's claims are also projected to be in the lower part of that range. Meanwhile, the company reported the rate of delinquent mortgages fell to 0.143 per cent – or 1.4 per 1,000 – down from 0.147 per cent in the third quarter and from 0.202 per cent in the year-earlier period. That fourth-quarter rate is about half the level experienced in the recession-ravaged first quarter of 2009. Also encouraging is investor reaction: GMIC stock is up by about 45 per cent since hitting its post-2009 IPO low last August.
It's a reminder that economic conditions in Canada remain quite strong, with positive GDP growth forecast for this year, still-decent employment numbers and a solid currency. Barring an alarming rise in interest rates or sustained high job losses, the case for a soft landing remains promising.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.