Genworth chief upbeat about housing market
TORONTO • Stuart Levings, head of Genworth MI Canada Inc., the country’s largest private mortgage insurer, has a message for U.S. investors: red-hot housing markets in Toronto and Vancouver aren’t about to plummet.
The chief executive has his work cut out for him.
Prices are up 71 per cent nationwide over the past decade, prompting organizations from the International Monetary Fund to the Bank of Canada to label the market overvalued, and investors such as Steve Eisman, of Neuberger Berman Group, to have shorted housing stocks.
Levings maintains the market has solid underpinnings and is travelling to the U.S. to make his case. Here’s his argument: The Canadian real estate ocean is full of plankton “We look at the housing market like a food chain,” Levings said in an inter- view. “The first-time homebuyers are really the plankton. And if you don’t have plankton in the ocean, you’re going to eventually starve out even the big whales and the sharks. You need that first time homebuyer to buy that home so the next person can move out to buy their own home.”
The demand comes from millennials and the roughly 250,000 annual immigrants buying their first property, according to Levings. Mortgage regulations worked The federal government has introduced several mortgage rules since 2008 to take the froth off heady real estate markets. Shorter amortizations and higher down payments have kept the riskiest of buyers out of the market, Levings said. Average credit scores of Genworth customers remained steady at 737 points.
The trick is for the government to keep this balance and avoid making further changes that will entirely squeeze out first-time homebuyers and poison the food chain, Levings said.
Outside Vancouver and To- ronto, markets have cooled.
“We’ve squeezed the firsttime homebuyers down into a small group who are qualified, good-quality borrowers,” he said. Where’s the correction catalyst? For a major correction to take place, Levings said, there needs to be forced sales. During the 2008 financial crisis in the U.S., mortgages often became bigger than property values, so owners walked away from their homes. Oil slump not a big issue Housing sales in Calgary dropped 28 per cent in April from a year ago and prices have dipped 1.5 per cent since November as the oil industry cut thousands of jobs.
Levings said the reality on the ground isn’t as dire as people imagine. In meetings with brokerages and equipment-servicing companies in the province, Levings said he’s learned that many companies have opted instead to retain employees but pay them less. Albertans continue to pay their mortgages. Subprime minuscule While some estimates of the shadow banking industry range as high as 10 per cent, Levings said it’s lower and too small to matter. The non-federally regulated lenders only make up about two to three per cent of home loans in Canada, according to Levings, who arrives at the estimate from conversations with lenders.
Growth in the sector, which includes mortgage investment corporations and private lenders, has picked up since tighter mortgage rules have pushed borrowers with low income and little documentation from the banks.