Will Home Capital problem crash Ontario's real estate market?

After the Ontario Securities Commission on April 19 accused Home Capital Group Inc. of failing to disclose “material” developments in its mortgage lending operations and of publishing “misleading” information, some real estate market experts have been saying that this case may trigger a market crash. But others are saying that the problem is local, there are no issues with mortgage borrowers’ ability to serve their debts and that the Canadian banking and regulatory system is as strong as ever. Some are even accusing the Ontario Securities Commission of overplaying Home Capital Group’s “insignificant” problems and pushing this alternative lender over the cliff.

Insignificant or not, but those problems have lead Home Capital Group to urgently borrow C$2 billion at a punitive rate of almost 23% to cover for the run of its investors. Again, some are saying that the rate is due to the bigger financial institutions’ trying to squeeze this alternative lender out of the market.

As of Wednesday, the stock market is taking a cautious approach. And it’s not even about the Home Capital Group’s stock which is trading around its recent lows of $7. Although some so-called smart investors like Taylor Asset Management are already buying it (according to theglobeandmail.com). It’s rather about other alternative lenders stocks like Equitable Group Inc. which bounced up 25% from its low where Home Capital Group dragged it, but is still well off its former highs.

Alternative mortgage lenders stocks (Equitable Group (EQB), Home Capital Group (HCG), Street Capital Group (SCB))

Irrespective of the activity in the stock market, Toronto’s real estate market remained very strong in April: The MLS® Home Price Index (HPI) Composite Benchmark Price was up by almost 32% year-over-year. But high prices are starting to attract more and more sellers: Greater Toronto Area REALTORS® entered 34% more new listings into the system in April 2017 than in April 2016. Will that, coupled with the Home Capital Group’s worries, lead the market to cool off any time soon?

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