First National entered 2024 with strong momentum. As is our practice, we are pleased to share the results of our most recent fiscal period and this brief market outlook with you.
Starting with our performance. We ended the year with a commercial mortgage portfolio of $49.0 billion, 16% higher than a year ago. This represents a new productivity record for our business. Similarly, First National achieved record annual mortgage originations of $13 billion – including $3.8 billion in the fourth quarter alone – 11% and 27% higher, respectively than in 2022.
While we are a true commercial lender across industrial and retail markets, these standout growth rates and the vast majority of our mortgage book reflect and are attributable to our long-time leadership position in financing multi-unit residential properties across Canada.
Which brings me to say, as I have many times in the past, that the multi-unit space is a great place to be for the long run if you are a developer, asset owner or lender. I have even greater confidence in that assessment today as you will see below in our outlook.
Before offering it, I want to give credit where it’s due: to you and every client who borrowed from, renewed and consulted with our advisors last year. We are grateful for the opportunities you give us to grow, serve and pursue our purpose of Better Lending.
A positive short and long-term outlook
Based on our commercial mortgage commitment pipeline entering 2024, the first half of the year is shaping up to be an active period.
When we assess the outlook beyond that, we take confidence from the fact that there has never been as much committed, long-term government financial support for multi-unit housing construction than there is now. I’m speaking of tax relief on new construction but also funds available to the sector through CMHC (including the incentive-rich MLI Select program) and the Canada Mortgage Bond.
In the two years since it launched, MLI Select program has been a gamechanger because of its premium discounts, favourable LTCs and LTVs and unrivalled amortization periods. As an approved CMHC lender, First National has developed a critical mass of knowledge and experience in navigating the nuances of this program. MLI Select’s ongoing presence represents a tailwind for the market and it is of particular importance now as government seeks to quickly close the gap between Canada’s population growth plans and affordable, accessible and energy efficient rental housing.
As your advocate, we continue to press policymakers for industry support and I’m pleased to see our voice is being heard. I’m also happy to note that CMHC has managed to put last year’s backlog behind it. We look forward to a normal cadence of application review timing.
A shifting market?
No outlook would be complete without offering comment on interest rates and market activity. First rates. Yields in the bond market continue to be somewhat range bound around 3.5% as traders await news of monetary policy easing by the Bank of Canada. For its part, the Bank has yet to give the market (or any of us, for that matter) the news we want to hear. Yesterday’s BoC decision to hold-the-line on its policy rate being the latest example. In this context, interest rate hedging with First National remains a strategy well worth considering.
Finally, on market activity. We continue to see some degree of hesitation among those planning construction projects because of current cost of funds. So in these cases, rate relief, in combination with incentives like MLI Select, will help to restore confidence and get those shovels in the ground.
There also appears to be a shift underway in institutional participation in the multi-unit property sector. After dominating the scene as buyers over the past decade, some pension funds seem to be leaning toward high-yielding asset classes outside commercial real estate. For private buyers, including the many multi-generational clients we serve, this could signal a new era of opportunity. Time (and cap rates) will tell.
In summary, First National is operating from a position of strength, measured in assets under management but also expertise and experience. As your Better Lending partner, we would very much like to use these strengths – including our strength of purpose – to do more for you in 2024. Please let us know how we can help.
With thanks,
Jeremy Wedgbury
Executive Vice President, Commercial Mortgages