The recent Ontario election carried the possibility of dramatic shifts in the province’s housing landscape. However, as I’d discussed here, those changes will likely impact builders more than the loan books and stock prices of alternative lenders. Does that mean investors should steer clear of the industry entirely? Absolutely not.
Canada Housing and Mortgage Corporation (CMHC) released a report on housing on June 14. It concluded that housing prices in Ontario will range from $562,000 and $575,000 this year and will reach between $570,000 and $595,000 in 2019. “Home prices are plateauing and are expected to grow along a more sustainable linear path supported by continued economy growth, moderate increases in interest rates and only moderate increases in new housing supply,” said CMHC economist Ted Tsiakopoulos.
The incoming Ford government has vowed to increase housing supply and improve affordable housing going forward. Reports indicate that the government will seek to streamline approval processes for building projects. There were rumours that the PCs would also push to develop the greenbelt, but the party abandoned this promise in the last month of the campaign.
This supply crunch will be crucial in supporting prices going forward. The Canadian population grew by one million over the past two years and two months, the fastest increase in the country’s history. New migrants and non-permanent residents accounted for 85% of this increase. Arrivals in Canada’s major metropolitan cities accounts for 78% of population growth. A census last July revealed that 35% of Canadians lived in the greater Montreal, Toronto, and Vancouver areas.
With this in mind today, we will take a look at my top housing stock to own as we head into the second half of 2018.
Genworth MI Canada Inc. (TSX:MIC) is a private residential mortgage insurer based in Oakville. Shares of Genworth have climbed 5.3% month over month as of close on June 15. The stock is up 29% year over year, but it has suffered from volatility in 2018. The company released its first-quarter results on May 1.
Mortgage borrowing fell by $2 billion year over year in the first quarter of 2018, negatively impacted by the housing climate in Toronto and Vancouver. At Genworth, transactional premiums written bucked this trend and were up 22% year over year to $109 million.
New OSFI mortgage rules imposed a stress test on uninsured borrowers. Genworth had already felt the impact of the stress test, which was imposed on insured borrowers in late 2016. By far, the most positive impact on earnings was the 18% higher average premium rate, which occurred on March 17. Overall premiums written were down 30% year over year.
Net income at Genworth climbed 20% from Q1 2017 to $128 million, and net operating income was up 11% to $119 million. Losses on claims were down $4 million from the prior year due to a decrease in new delinquencies. The company also announced an attractive quarterly dividend of $0.47 per share, representing a 4.3% dividend yield.