The Canadian real estate industry has been abuzz about the new OSFI rules set to trigger on January 1, 2018. The new mortgage rules will see uninsured borrowers, those with a 20% down payment or more, subjected to a stress test. This is expected to dramatically depress the purchasing power of prospective buyers, and has some analysts calling for a significant cooldown in the first half of 2018 and perhaps beyond.
Let’s look at one alternative lender which will be facing these challenges head on in 2018.
Equitable Group Inc. (TSX:EQB) is a financial services company and one of the most prominent commercial and residential lenders in Canada. Shares have bounced back nicely after the crisis at Home Capital Group Inc. pushed down many stock connected to housing. Equitable Group stock has climbed 26.7% since September 4.
The company released its third quarter results on November 9. Net income jumped 7% to $37.9 million and deposit principal was $10.5 billion – up 14% from the prior year. In the first nine months of 2017 Equitable Group reported an increase in mortgages under management to $22.8 billion from $19.9 billion in the previous year. Net income was 19% higher year to date, up to $120.2 million.
Equitable Group leadership warned in its second quarter results that new OSFI rules could slow down loan growth, but that the rules could also improve retention rates. The stock offers a 1.3% dividend yield but it may be overvalued heading into what could be a very unpredictable 2018 for housing.