Demand for mortgages is cooling: banks
Amid government measures to curb housing prices, lenders see drop-off in their home-loan portfolios
Canadian mortgage growth is slowing as the country’s policy makers step up efforts to cool overheated housing markets in Vancouver and Toronto.
With four of Canada’s biggest banks reporting second-quarter results, the trend shows that growth in home loan portfolios is easing and in some cases shrinking. It’s a welcome sign for officials struggling to curb residential prices in two of the nation’s largest cities.
The federal government tightened mortgage rules and added other measures in October while opening the door to shifting risks of defaulting home loans to lenders. Toronto-Dominion Bank, Canada’s largest lender by assets, reported Thursday that domestic residential mortgage balances slipped 0.4 per cent to $187.5 billion compared with the prior three-month period, the first contraction in two years.
“We do expect growth in mortgages over the next few years to be somewhat lower than it has been over the last five years.” THOMAS FLYNN CFO, BANK OF MONTREAL
Home loan balances were up1.2 per cent from the same period last year — the slowest annual growth rate in at least four years.
Toronto-Dominion is seeing the effects of “de-emphasizing” some parts of its mortgage business, including reducing purchases of private-label originations, chief financial officer Riaz Ahmed said in an interview. He also said the country’s residential property market appears to be moderating.
“In the last two weeks of April or so, we did begin to see some cooling in the housing market as sales activity slowed and more supply came to the market,” Ahmed said.
“We are happy with that because that’s generally good for Canada and our customers.”
Royal Bank of Canada, which has the biggest share of domestic mortgages, said average home loan balances rose 5.5 per cent to $224.1 billion from a year earlier, its slowest annual growth since the first quarter of 2015.
Chief executive officer David McKay said he was “encouraged” by April data regarding the Toronto market.
“New listings were up 34 per cent from the prior year, which suggests some potential easing of the supplydemand constraints that contributed to rising home prices,” McKay said Thursday on a call with analysts after posting quarterly results.
“We believe the housing market will continue to be supported by steady population growth, which is partially driven by immigration, household income gains and low interest rates.”
The country’s financial industry has been focused recently on the woes of Home Capital, the Torontobased alternative-mortgage lender whose share price plummeted after it was accused by regulators of misleading investors on an internal probe into falsified mortgage applications. McKay told analysts Thursday that he didn’t see Home Capital as posing a broader risk to the country’s mortgage market.
“I don’t view it as a positive devel- opment nor do I view it as systemic,” McKay said.
Bank of Montreal’s domestic mortgage book shrunk for the first time in two years, with average balances in the quarter slipping about 0.1 per cent to $98.3 billion from three months earlier, the Toronto-based firm said Wednesday.
Bank of Montreal, which has the smallest share of the domestic market among Canada’s five largest lenders, said home loan balances rose 5.2 per cent from a year earlier, the slowest annual growth in three quarters.“There is a little bit of seasonality in the second quarter,” CFO Thomas Flynn said in a phone interview. “It’s not as active of a mortgage season for us, and it’s also a slightly shorter quarter.”
Canadian Imperial Bank of Commerce (CIBC) appeared to be an outlier among Canadian lenders, with mortgage balances jumping 12 per cent from a year earlier.
Still, growth from the prior quarter eased to 2.3 per cent — the slowest sequential gain in a year.
Increases in Toronto home prices slowed in the first two weeks of May, according to the city’s real estate board, after climbing 25 per cent in April from a year earlier and 33 per cent in March.
Last month, Ontario’s government announced plans for a 15-per-cent tax on foreign buyers, following similar measures enacted in British Columbia in August.
“We are seeing some regional differences — the Vancouver market cooling, the Toronto market heating — but that was prior to the recent changes,” said David Williamson, CIBC’s head of retail and business banking, adding that it’s probably too early to see the effect of government measures.
Bank of Montreal expects slower growth in Canadian mortgages, which will happen “gradually,” Flynn said.
“We do expect growth in mortgages over the next few years to be somewhat lower than it has been over the last five years,” Flynn said. “That’s just reflecting the expectation that the market will continue to be stable but will cool somewhat.”
Toronto-Dominion, Royal Bank and CIBC all reported second-quarter profit that beat analysts’ estimates, with lower loan-loss provisions helping boost results at all three lenders.
“In the last two weeks of April or so, we did begin to see some cooling in the housing market as sales activity slowed and more supply came to the market.” RIAZ AHMED CFO, TORONTO-DOMINION BANK