Shares of Home Capital Group Inc. (TSX:HCG) declined 2.4% in the late morning on September 6 as the Bank of Canada announced it would hike the base interest rate 25 basis points to 1%. After an initial decline the stock has been relatively flat since the first rate hike on July 12, but there are other ominous signs for the stock’s long term future.
A report from the Toronto Real Estate Board on September 6 showed that Toronto-area home prices continued their slide into August. The average home price has dropped 20.5% since the peak seen in April. Home prices since last year are up 3%, demonstrating that current conditions have wiped away an entire year of double-digit gains. New regulations introduced by the Ontario government have apparently accomplished what was intended. TREB officials are still confident that a more balanced sales environment could still result in sales growth as buyers may flock back into the market in the fall.
New mortgage regulations introduced by OSFI will also slow Home Capital Group’s mortgage sales growth, though it may aid in retention. Uninsured mortgages will be subject to more stringent stress tests that will put pressure on alternative lenders. Home Capital Group is still in a rebuilding phase and hired a new CFO in August. This interest rate rise is likely the last in 2017 as the Bank of Canada stressed caution in this move. Home Capital Group will continue to fight an uphill battle as the real estate market suffers through this storm.
Related Stories
