In its most recent meeting, the Bank of Canada elected to hold on its benchmark interest rate citing concerns over housing and global trade. On March 23 Statistics Canada released the Consumer Price Index (CPI) for February, which rose 2.2% year over year. This sent the Canadian dollar up on Monday and appears to clear the way for another rate hike in April.
The Canadian housing market has suffered to start 2018 as sales have fallen dramatically. New OSFI mortgage rules that came into effect in January were already expected to be a damper on the market. An accelerated rate path could prolong the sales drought into the spring and summer months. Alternative lender stocks have struggled mightily in 2018 so far.
Equitable Group Inc. (TSX:EQB) was down 1.22% at the top of the noon hour on March 26. In 2017 Equitable Group posted record income and mortgages under management. Leadership warned in mid-2017 that new mortgage rules could slow credit growth going forward. Home Capital Group Inc. (TSX:HCG) was down 1.37% in early afternoon trading. Shares have plunged 20% in 2018 thus far. Although the company has undergone internal restructuring and returned to profitability, its mortgage originations have plummeted dramatically year over year.
Bank of Montreal recently released analysis that projected Canada housing to enter a period of stagnation that could last for a decade or more. As the Bank of Canada moves forward on higher rates investors should steer clear of alternative lenders until a clearer picture emerges from the spring and summer months.
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