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A $20 Billion Housing Crash in America Could Hurt Canada: Are You Prepared?

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Is the U.S. facing a housing market crash during an election year? News about a landmark real estate fund racing to curb outflows is resonating. A Wall Street Journal report in early February 2020 that investors are waiting to withdraw some US$7 billion from the US$20 billion UBS Trumbull Property Fund.

This Swiss bank fund is the owner of real estate properties in Cambridge, Massachusetts, as well as hard assets in Chicago, New York, and other locations. Only recently, the lack of available homes for sale resulted in an incredible price appreciation of real estate.

Of late, however, weak commercial real estate and a series of store closures are causing uneasiness among investors. UBS is estimating U.S. store closures to be 75,000 by 2026. If redemption requests continue to rise, the U.S. housing market might be heading to crash.

Canada’s housing market

Despite the ups and downs, the housing market in Canada was able to post higher prices and sales in 2019. The housing market in general displayed resiliency and earned a passing mark following the slowdown that began in 2018.

Now, dark clouds are hovering. If the $20 billion time bomb explodes across the border, it could erase the gains last year and trigger a tailspin this year. The situation is a bit alarming, because the Canada and U.S. markets, at some times, are moving in a similar direction.

Towards the end of 2019, the Big Six banks reported lower profits and higher loan-loss provisions. Is it the new normal, or are the banks preparing for an eventuality like a housing market crash? Investors are starting to monitor the amounts the banks are setting aside for bad loans.

Royal Bank of Canada CEO Dave McKay said last December, “The next couple of years are likely to be challenging given interest rate trends, uncertainty around global growth, trade tensions and normalized credit conditions.” A possible housing market crash in the U.S. is the latest threat.

Beating the bigger banks

Canada’s sixth-largest bank, National Bank of Canada (TSX:NA), also increased its loan-loss provision by almost 22%. The only difference with bigger industry peers during the Q4 fiscal 2019 was that this bank reported profits and increased dividends.

Net income rose by 6.71% to $604 million versus the $566 million a year earlier. Likewise, National Bank’s loan portfolio grew 5% to $153.25 billion during the quarter. The personal and commercial banking unit, along with the wealth management business, saw a 5% and 10% increase in net income, respectively.

The year-ending figures that beat consensus estimates make this bank stock a good investment option and the perfect hedge in case of a market crash. Based on analysts’ forecasts, National Bank should be growing by 6.55% annually over the next five years. Likewise, the 4% dividend should be safe amid the headwinds.

Re-balancing act

With the distressing signals in the U.S., the best preparation is to re-balance investment portfolios. Aside from National Bank, there are defensive and recession-resistant stocks you can choose to protect your capital. Let’s hope the prediction is not grave as it seems.

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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 Christopher Liew has no position in any of the stocks mentioned.

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