Genworth MI Canada Inc. and Home Capital Group Inc. reported profits that beat analysts’ estimates as low interest rates drive demand for Canadian homes.
Canada’s residential housing market has drawn concern from regulators and economists who say it may be 20% overvalued and that consumers are taking on too much debt. The low losses at Genworth show Canadians aren’t having trouble paying off their mortgage debt, while the increased origination highlights strong demand.
Home Capital, the country’s largest alternative mortgage provider, also beat analysts’ earnings estimates and increased its dividend to 18 cents a share. First National Financial Corp., the largest non-bank mortgage lender and underwriter, increased originations 12% over last year to $4.7 billion.
Genworth’s profit excluding some items was $1.04 a share, the Oakville, Ontario-based company said, beating the 93-cent average estimate of nine analysts surveyed by Bloomberg. Loan losses declined to 12%, a record low. Genworth forecast that loss ratio will rise to a range of 15% to 25% for the year.
“The housing markets are performing well,” Genworth Chief Executive Officer Brian Hurley said in an analyst conference call. “The interest rate environment is stable and looks to stay that way for a while.”Bank of Montreal analyst Tom MacKinnon raised his rating on Genworth to an outperform from market perform after the results were announced.
Genworth Chief Operating Officer Stuart Levings cited Vancouver and Toronto as cities that are facing affordability pressure. Toronto’s home prices soared more than 76% in the last 10 years and Vancouver prices rallied 4.4% in June over the previous year to $800,689.
“The Canadian consumer has been able to service their debt,” LeBlanc said. “Even though debt levels in Canada are increasing, we’re seeing really low defaults. You’re not seeing strain there.”
Genworth rose 0.9% to C$39.60 at 10:34 a.m. in Toronto. First National fell 1.8% to C$23.42. Toronto- based Home Capital climbed 0.9% to C$51.93, after earlier reaching a record high.