First National issued its first quarter financial results last Friday. As is my practice, I am pleased to provide this summary along with updated thoughts on the outlook for commercial property financing.
For the quarter, we originated $2.2 billion of multi-residential and commercial mortgages, bringing our total commercial portfolio to a record $43.5 billion. (Mortgages Under Administration for First National as a whole also reached a record $133.0 billion, 7% above last year).
In addition to offering a heartfelt thank you for doing business with us, I thought you might also appreciate knowing a few underlying facts:
- Over 80% of our new commercial originations were insured, which is well above our normal mix but consistent with our expectation that this would be a CMHC year
- Our commercial originations were 12% below last year’s first quarter, something I would not normally trumpet but given market activity levels, suggests we are more than holding our own
After enduring many months of rising interest rates, it was refreshing to see the Bank of Canada hold the line on its policy rate at 4.5% at its two most recent meetings. We can’t predict where rates will go next, but note that 10-year Government of Canada bonds peaked at just over 3.5% in early March and steadily declined to be range bound around 2.8% last week.
Our sense, in speaking to clients across the country and our institutional investing partners, is that confidence is returning to the market. From a pens-down situation late last year, there appears to be more interest in buying and selling many asset types – including but not limited to multi-unit residential properties – on the belief that rate stability has arrived and that insured mortgage coupons for large loans in the 3.75%-4% range make good economic sense when considering transactions. True, they are not as good as they were in the early stages of the pandemic, but no one realistically expects them to return to that level.
It would be too early for me to call this the beginning of a new risk-on market cycle, but such a future is coming into view. We certainly feel that the second half of 2023 will be stronger than the same period in 2022 and that belief is borne out by the positive state of our commitment pipeline.
CMHC and conventional financing
Numbers don’t lie and it’s very clear from the volumes generated this past year that MLI Select, CMHC’s special programming to incent the creation and preservation of multi-unit residential housing, is an extraordinary success. Demand signals and available supply of capital make it such that we will continue to focus on first meeting the needs of our loyal clients. In fact, our pipeline looks exceptionally strong right through the third quarter of 2023. CMHC’s recent decision to increase premiums – for the first time in six years – starting in June is something to consider but the fact remains that MLI Select’s features such as long amortizations and high LTVs and LTCs make the program hard to beat.
Meantime, with signs of increasing market confidence and liquidity, conventional mortgage financing – the competitive brand that First National provides – is attracting additional interest. These so-called green shoots are a positive sign.
Future of Canada Mortgage Bond (CMB)
In this year’s federal budget, the Government of Canada announced its intention to undertake market consultations on a proposal to consolidate Canada Mortgage Bonds within the government’s regular borrowing programs. The reason? Even though they carry the same credit rating as Government of Canada Bonds, CMBs are a more expensive form of debt for the government and money saved through consolidation could, to quote the budget, “reduce debt charges” and enable savings to be reinvested “into important affordable housing programs.”
We will have to wait until the government’s fall economic statement to learn more, but we are hopeful that future government initiatives will continue to be as effective in stabilizing access to mortgage funding as the CMB has been for the past 22 years.
On the topic of team, I am pleased to note that John Lucas is now settling into his role as Regional Vice President, British Columbia and Alberta and Scott Mizzen joins us this week to serve in the newly created role of Regional Vice President, Ontario.
I’m also delighted to announce that First National is now able to offer boots-on-the-ground advice and service in Ottawa with the recruitment of Alexandra Mastro as Director. Alexandra will work closely with Darryl Bellwood who has very effectively served the nation’s capital from Toronto for many years.
We’ll let Scott and Alexandra settle in, but I know they will be quick off the mark in bringing their expertise to bear.
In all, I consider this a successful quarter with credit to you and our growing commercial team of advisors for working diligently to navigate this challenging, unpredictable and volatile environment to find the very best financing solutions.
As always, for advice, competitive insight or solutions that fit your needs and objectives, please contact your First National advisor.