Mortgage industry welcomes Buffett to the neighbourhood

Canada’s real estate industry is greeting billionaire Warren Buffett’s lifeline to embattled mortgage lender Home Capital Group Inc. as a vote of confidence, not just in the company, but potentially in the sector as a whole.

It might, however, take some time before the decision by the Oracle of Omaha to indirectly acquire $400 million of the Toronto-based company ’s common shares to have an impact on actual borrowing.

“I think this very positive and something our industry has been waiting for,” said Vince Gaetano, principal of Monster Mortgage. “We always knew there was a strong company there that provided a great niche of a lending vehicle for the self-employed and the alternative market. Having the star power of Warren Buffett backing this company is a significant vote of confidence.”

For months, the pullback of Home Trust has shrunk the amount of credit available in the marketplace and left people scurrying for funding, almost always at a much higher cost.

“Home Trust has always been in a leader in the space and the competition seemed to follow their lead. With them not as a viable solution or parked on the sidelines, it has seized up the whole credit vehicle for these type of loans. A lot of selfemployed people will be breathing easier now,” Gaetano said.

Buffett’s move may also create confidence in the real estate sector which has been shaky in Toronto, following a decision by Ontario to slow the market in Canada’s largest city with new taxes on foreign owners and other measures.

Some in the real industry have also talked about a “Home Capital” effect on the doorstep, as nervous buyers just shied away from purchases. Average prices in Toronto are now off about 12 per cent from their April peak.

“Perhaps at the margin, the fact that Warren Buffett is willing to make this investment may send the signal to some that the broader housing market remains sound,” said Doug Porter, chief economist with Bank of Montreal.

“Now, that might be a mis-reading of both the specific investment and the outlook for housing, but I wouldn’t doubt that it emboldens some potential buyers.”