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Will These 2 Stocks Benefit From the Proposed Federal Housing Policy?

Back view of hugging couple standing with real estate agent in front of house for sale
Image source: Getty Images

Back in January, I’d discussed how the private and public sphere were both making a push to give housing a booster shot in 2019. The federal government — along with provincial and municipal governments across the country — has long promised that it will take measures to improve housing affordability for Canadians. In the 2019 budget, the Liberals unveiled their boldest proposal to satisfy prospective home buyers.

Under the CMHC First-Time Home Buyer Incentive, the CMHC would use up to $1.25 billion over the next three years to help lower mortgage costs for eligible Canadians. Borrowers will be required to collect a down payment of at least 5% to qualify. The plan would see them receive an incentive of up to 10% of the house price, which would then lower the price of the mortgage. Only households with an annual income under $120,000 will be allowed to participate.

It is important to note that the amount of the insured mortgage plus the CMHC incentive would be capped at four times the home buyers’ annual income. This would cap the purchase price at around $500,000. The average home price in Toronto, Canada’s most populous city, is over $800,000. Hamilton, which has drawn Toronto buyers because of its affordability, saw the average price of a detached home climb over $540,000 last year.

The new budget proposes increasing the Home Buyers’ Plan (HBP) cap from $25,000 to $35,000. Economists at the Canadian Centre for Policy Alternatives project that these measures will stimulate demand and potentially push up housing prices. This will allow for many young buyers to gain entrance into the market as well. That should be good news for big bank and alternative lenders alike.

Equitable Group (TSX:EQB)

Equitable Group stock has climbed 10.7% in 2019 as of close on March 25. Shares have increased 21% year over year in the face of turbulent housing market conditions. In fact, Equitable Group posted impressive portfolio growth in 2018, which blew away its own projections.

Changes that will open lending for prospective buyers can only be good for alternative lenders like Equitable Group. Early estimates from mortgage professionals in 2018 suggested that over 100,000 new buyers had been frozen out of the market due to new OSFI regulations. Buyers that near the threshold often look to lenders like Equitable Group.

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM)

CIBC stock has increased 7.4% in 2019. Shares have dropped 4.2% year over year. CIBC released lukewarm first-quarter results in late February, and its mortgage portfolio was unable to gain the kind of traction it has reported in recent years.

New federal policy, which aims to open opportunities for new buyers, should give a boost to CIBC and its peers. Big banks have seen mortgage portfolio growth slow under new regulations. This was not unexpected. Banks have managed to maintain solid profits due to improved margins, but with rate hikes on pause, large financial institutions will be hungry for a higher rate of loan growth. This new policy is designed to deliver on that account.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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