This week, the Canadian Real Estate Association (CREA) released numbers that may be encouraging for investors and policy makers. Home sales rose 1.9% in July compared to June, but are still down 1.3% year over year. The average sales price rose 1% year over year to $481,500. This represented the first annual increase since January. The Toronto and Vancouver metropolitan areas continue to inflate price acceleration, removing these two markets’ drops the average below $390,000 nationwide.
On the surface, it appears that new OSFI mortgage rules, which include a stress test for uninsured buyers, and stiff regulations in Ontario have successfully cooled markets. Two Bank of Canada interest rate hikes are also reportedly weighing on home owners and prospective buyers. The takeaway was lukewarm for many analysts, citing tepid price acceleration, while also pointing out stabilization that should please policy makers.
The CMHC is set to introduce new rules in October that will ease qualifying criteria for self-employed Canadians. Home ownership has declined since 2011, and this has become a hot political topic. This news may be welcome for some Canadians, but it is unclear whether it will move the needle for the market as a whole. Earlier this month, I’d discussed whether or not the change was good news for lenders.
With the housing market stabilizing, and purchasers being granted additional flexibility in the fall, it may be a good time for investors to re-evaluate some of the top lending stocks.
Equitable Group (TSX: EQB)
Equitable Group stock had climbed 12.1% over a three-month span as of close on August 16. Back in July, I’d argued that the stock was a solid option for investors looking for a potential bargain. The company released its second-quarter results on August 9.
Adjusted diluted earnings per share rose 8% year over year to $2.45. The single-family lending mortgage principal hit a record $9.8 billion due to strong originations, and the retention while commercial lending mortgage principal also reached a record $3.3 billion. Equitable Group declared a dividend of $0.27 per share, representing a 1.6% dividend yield.
Home Capital Group (TSX: HCG)
Home Capital stock has increased 2.2% over the past three months, but suffered a steep loss immediately following its Q2 release. Shares are down double digits in 2018 so far.
Net income rose to $29.6 million compared to a net loss of $111.1 million in the prior year. It also reported total mortgage originations of $1.23 billion, which represented a 10% year-over-year increase. Home Capital has worked furiously to rebuild its mortgage book after catastrophe hit in the spring of 2017. CEO Yousry Bissada has admitted that stiff competition combined with rate increases had complicated its comeback bid.
Home Capital still boasted $1.82 billion in liquid assets compared to $1.45 billion at the end of the first quarter.
Which should you buy today?
I will reiterate my position from prior articles that Equitable Group is the superior option among the two. It provides investors with a solid dividend and has continued to post decent growth, even as the housing market at large has challenged lenders.
