The real estate industry was vocal about its expectation for a slowdown to begin 2018. The OSFI had introduced new mortgage rules which included a stress test on uninsured borrowers that would begin in January. This was expected to eat into the purchasing power of tens of thousands of potential purchasers.
Towards the end of 2017, the Bank of Canada balked on a third rate hike and stated that it wanted to monitor how the housing market would respond to these changes before it moved ahead. However, after solid jobs numbers in December, inflation hitting 2.1% in November, and business outlook improving, commercial banks are now projecting the rate hike to come in the next meeting on January 17.
Equitable Group Inc. (TSX:EQB), one of the nation’s top alternative lenders, has dropped 6.5% to start 2018. In the third quarter Equitable Group saw net income rise 7% and year to date mortgages under origination increased by 14%. The company also announced a quarterly dividend of $0.25 per share representing a 1.5% dividend yield.
Genworth MI Canada Inc. (TSX:MIC) is the largest residential mortgage insurer in Canada. The stock has dropped 2.8% to start the New Year. Genworth should be relatively unaffected by the new rules as the company does not deal with uninsured borrowers. The stock offers an attractive quarterly dividend of $0.47 per share with a 4.4% dividend yield.
If the Bank of Canada pulls the trigger on a rate hike on January 17 investors should expect some significant turbulence in housing. The market is expected to stabilize by the spring of 2018. Both of these stocks could correct into a long bargain in the first months of the year.