Are Housing Stocks Headed for a Choppy Summer?

Equitable Group Inc. (TSX:EQB) stock was up 1.77% in the final hour of trading on July 9. Shares have plunged 18.6% in 2018 so far. Home Capital Group Inc. (TSX:HCG), another premier alternative lender in Canada, was up 2.25% in the same period of trading. Its stock is down 15.1% in 2018 thus far.

The Bank of Canada will likely elect to hike the benchmark interest rate after its meeting on July 11. In previous meetings Governor Stephen Poloz has cited trade concerns and the state of the Canadian housing market as a reason to be cautious going forward. Inflation has remained in range although there was some slippage in April and May.

Both Equitable Group and Home Capital stock spiked following the early rate hike in January before falling victim to a broader sell-off across global markets. Regulatory reform has eaten into loan growth for both companies with uninsured buyers now subject to a stress test as of January 2018. Home Capital has also undergone significant internal restructuring after its underwriting practices nearly sunk the company last year.

The good news for both is that the more stringent regulations are likely to improve retention rates going forward. The Bank of Canada is expected to exercise even more caution going forward, which means that we could be finished with rate hikes in 2018 if the move is made this week. This could provide stability for both of these lenders in the second half of the year, but the broader picture in Canada housing is still worthy of concern.