Is Canada Housing Over the Hump or Is the Worst Yet to Come in 2018?

Housing prices have dropped in January, but the worst may be over for stocks such as Equitable Group Inc. (TSX:EQB) and Genworth MI Canada Inc. (TSX:MIC).

| More on:

The Toronto Real Estate Board (TREB) released a report showing that Toronto home prices were down 4.1% year over year in January. The average home sold for $736,783 in the Toronto area last month. TREB also reported a 22% fall in home sales compared to January 2017, further demonstrating the apprehension of buyers to get into an uncertain market.

Condo prices, however, have continued to increase to start 2018. The average condo sold for $507,492 in the Toronto region, which represented a 14.6% rise year over year. TREB director of market analysis Jason Mercer said that very low inventory drove the housing surge in the beginning of 2017.

Real estate industry representatives from Royal LePage have said that buyers and sellers are still feeling out this new market, and it may take until spring for anxiety to dissipate. Re/Max representative Christopher Alexander says that prices will likely continue to climb when the market stabilizes, barring an “unforeseen event.”

But what about stocks linked to housing? Does the recent drop in the S&P/TSX Index provide an attractive entry point for investors? Or are real estate stocks simply too risky right now?

Equitable Group Inc. (TSX:EQB) has seen its stock fall 12.4% in 2018 as of close on February 14. The company is expected to release its 2017 fourth-quarter and full-year results on February 28. Investors should keep an eye on Equitable Group; a late season boom in November and December could reflect in its final earnings. Many buyers were rushing to lock in purchases before the new OSFI mortgage rules came into effect, which included a stress test on uninsured buyers.

Home Capital Group Inc. (TSX:HCG) has been mostly flat in 2018 thus far — up 0.17% as of close on February 14. Home Capital released its 2017 fourth-quarter and full-year results after trading closed on the same day. It managed to bump up results from its third quarter, as net income grew 2.1% to $30.6 million and diluted earnings per share rose 3.7% to $0.38. Total mortgage originations also jumped 126% from the previous quarter to $872.1 million. However, mortgage originations were still down substantially — 64.1% — from the $2.43 billion in Q4 2016.

Genworth MI Canada Inc. (TSX:MIC), the largest private residential insurer in Canada, has seen its stock fall 4.6% so far in 2018. In 2017, premiums earned rose 6% from 2016, and net income increased by 27% to $528 million for the year. Genworth also delivered an attractive quarterly dividend of $0.47 per share, representing a 4.5% dividend yield.

Will further rate hikes batter housing?

Canadian GDP rose 0.4% in November, but this news has been dampened somewhat by subsequent reports. Inflation edged down to 1.9% in December after posting a surprise jump to 2.1% in November. The most alarming piece of news was the jobs report from Statistics Canada, which said that Canada shed 88,000 jobs in January — the highest mark since 2009.

Bank of Montreal analysts have said that the Bank of Canada will be reluctant to move in March and April after the jobs numbers. A slumping TSX is also likely to give policy makers pause going forward. If the central bank elects to hold off, Canada housing could see an early boost, as investors get a clearer look at the market impact of recent regulations.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

edit Women wearing red sweater shopping online and using credit card at home office
Dividend Stocks

Safe Stocks to Buy in Canada for December 2023

A Big Bank and an iconic retailer are the safe Canadian stocks to buy in December 2023.

Read more »

gas station, convenience store, gas pumps

Better Buy: Couche-Tard Stock or Parkland Fuel Stock?

Alimentation Couche-Tard (TSX:ATD) and Parkland Fuel (TSX:PKI) are retailing greats that have really gotten hot in recent months!

Read more »

Businessman holding AI cloud
Tech Stocks

1 AI Stock I’d Buy Over Nvidia for 2024

Nvidia (NASDAQ:NVDA) stock isn't the only AI play to put atop your shopping list this December.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Got $1,000? 3 Top Canadian Stocks to Buy in December

Given their high growth prospects and attractive valuations, these three growth stocks could deliver superior returns over the next three…

Read more »

A bull outlined against a field

3 Cheap TSX Stocks I’d Buy Before the Bull Market Arrives

Undervalued TSX stocks such as Savaria and BRP trade at a significant discount to consensus price target estimates.

Read more »

Dividend Stocks

2023 TFSA Contribution Time: 2 Dividend Stocks to Buy with $6,500

Earn tax-free dividend income by investing in these top Canadian stocks via your TFSA.

Read more »

grow dividends
Tech Stocks

3 Ways to Find Momentum Stocks That Won’t Drop

Look for momentum stocks that have been climbing steadily for years and can give you a boost from time to…

Read more »

Paper airplanes flying on blue sky with form of growing graph

Down 34% in 8 Months, Is Bombardier Stock a Buy Today? 

Is the stock a buy at less than $50 a share?

Read more »