The first of Canada’s Big Six banks released its Q2 report yesterday, but it came with an additional message: Expect originations to drop 50% over the second half of the year.
“When we look at the second half, we continue to see that there will be origination decline, probably in around 50% range relative to the same period last year,” Christina Kramer, CIBC’s group head of personal and small business banking for Canada, said during a conference call.
She added that the likely explanation is new mortgage underwriting guidelines.
According to a Toronto-based Mortgage Intelligence broker, the expected decline isn’t surprising. In fact, she says it’s already started but that doesn’t mean borrowers won’t procure other broker services.
“There has been a drop off in originations already,” said Kim Gibbons. “I can see reduction in purchases, but people are still going need refinances and renewals.”
Don’t be surprised to hear the other five chartered banks make similar proclamations over the coming week. However, as Gibbons alluded to, only purchases will be affected.
“I build a strategy out 120 days prior to maturity,” said Gibbons. “We’re in a rising rate environment, so how I keep my business is to make sure I contact my clients 120 days out from the renewal date and build a strategy to lock them up at a rate they wouldn’t otherwise get at the time of maturity. I do the same thing if they don’t want to renew at the time and they only want to refinance.”
In Canada’s second-largest city, which is experiencing a real estate renaissance these days, prices are still moderate and that could spell better news for purchasers and their brokers.
“We’re still at a price point where it makes sense for clients to purchase and I expect we’ll have a good run here for the next five years,” said George Macris of DLC Centre-Ouest in Montreal. “CIBC is the first lender to release their Q2 report, but it was better than expected, and that’s good.”
Indeed, CIBC’s 25% boost in net income compared to the same time last year was, by its own admission, better than expected. The bank’s spot mortgage balance during the second quarter was $203bln—a 6.8% increase over last year.
But the bank’s mortgage lending has lost momentum.
“I expected that there would be a slowdown,” said Gibbons. “If you look at the market, in terms of sales over the last four months, there’s been a reduction in sales in the Toronto area, at least, and it’s all to do with the regulation, the stress test, and the increases in bond yields and rates. It’s a perfect storm.”
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