Amid uneven weather patterns and a decrease in home sales across the country, Canada's largest non-traditional mortgage lender posted solid gains in its first quarter earnings.
Toronto-based Home Capital Group Inc., which lends money to customers who might not qualify for a bank loan, said that home buyers who had put their decision to buy on hold in the second half of last year seem to be re-entering the market now -- many of them are first-time buyers.
The inclement weather, changes to mortgage rules and pessimistic government comments that had a negative impact on home sales are now abating, said Gerald Soloway, chief executive officer of Home Capital. He points to the recent data out from the Toronto Real Estate Board indicating that home sales in the Greater Toronto Area were down just two per cent in April, with prices up slightly.
The company compares that to figures from the Canadian Real Estate Association showing a 15 per cent decrease in housing activity compared to the first quarter of 2012.
"The fact that sales have closed the gap from below 15 per cent year-over-year to just 2 per cent – we generally see the marketplace slowly recovering and adjusting itself. We don't see anything dramatic happening in a negative way," he said.
After the markets closed yesterday, Home Capital released first quarter earnings of $59.7-million, a 13.7 per cent increase over the same period last year and 1.3 per cent over the prior quarter. The company specializes in lending to customers such as immigrants without enough credit history, or self-employed people with finances tied up in their businesses. Home Capital also takes deposits and issues credit cards.
Traditional mortgage origination increased by more than 7 per cent in the period to $0.99-billion in the quarter. "That's pretty good progress into the fairly strong headwinds of the quarter," Mr. Soloway said.
After telling analysts in its fourth quarter earnings call to wait and see whether the country's housing market would see the soft landing he predicted, Mr. Soloway says he's still encountering those who think the housing market is in bubble territory. "There are still people out there saying that there's a bubble and there's all kinds of disaster coming, but we see a pickup in momentum," he said in an interview. "I didn't say this the last quarter, but in my conference call [today] I'm going to make reference that there's real, solid signs of a pickup in the housing market, in the number of transactions."
Better economic data from businesses and jobs figures south of the border contributed positively to the real estate environment in Canada, he said. "It'll be a market with decent activity and not a lot of rising prices," Mr. Soloway said of the next six months.
Other highlights in the recent quarter included a windfall in multi-unit residential mortgage originations that came in at $202.6-million in the quarter, from $27.5-million last year. The rise came from a group of related mortgages on a group of buildings that were totalling about $100-million.
As the Globe recently noted, Home Capital's share price has suffered because of pessimism surrounding the country's housing market--the company's shares are trading down 8.5 per cent year-to-date. but Mr. Soloway is not bothered by the fluctuations of the market. "We just try to deliver strong earnings and profitability and the market will decide for itself," he said.
(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)
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