Canada’s biggest mortgage lenders are getting absolutely killed, with market participants now wondering whether Home Capital Group (Unfortunately, we could not get stock quote HCG this time.) survives. It’s p/e is now 1.7 times earnings and the stock is down 80% year to date. Luckily for believers in the iShares MSCI Canada (EWC 36,88 -0,27 -0,73%), none of the big four mortgage lenders are top holdings.
MSCI Canada is an under performer thanks to lackluster metals prices, not real estate. The S&P Toronto Stock Exchange Index is down 0.45% this year, but the bank heavy MSCI Canada ETF is down 2.04% and the big mortgage banks are even worse.
Equitable Group (Unfortunately, we could not get stock quote EQB this time.) is down 34.4%, Genworth (MIC 4,09 0,00 0,00%) is down 7.37% and Street Capital is down 21.05%.
Toronto and Vancouver’s housing market has been on a tear over the last decade. Back in February, short seller Marc Cohodes was the star of a Bloomberg profile piece where he discussed Vancouver; in particular its Chinese-laden housing market.
For those who didn’t catch the article, Cohodes warned that the British Columbia government has ignored or even encouraged illegal money entering the country from China. China is cracking down on its shadow banking system, making it harder for some of that money to leak back out into the U.S. and Canada. Cohodes Canadian real estate shorts have no exposure to Vancouver, according to the report. Vancouver homes go for New York city prices, around $1.1 million, nearly 20 times median income there. In August, British Columbia’s government imposed a 15% tax on foreign buyers (target: China) and home sales plunged 40% in January compared to a year ago.
Home Capital founder Gerald Soloway is supposed to step down from the board when a replacement is named. Robert Blowes will assume the role of interim chief financial officer, the company said on April 22.
“The company anticipates that further declines will occur, and that the credit line would also mitigate the impact of those,” Home Capital said in a statement.
It is unclear whether Home Capital’s downfall is dragging similar companies down with it, or if we have a bubble about to burst north of the border.