Will New Lending Rules Sink the Canada Housing Market?

Canada housing activity has fallen due to COVID-19, but the reopening should spur investors to look at stocks like Genworth MI Canada Inc. (TSX:MIC).

| More on:
Community homes

Image source: Getty Images

The Canadian housing market has undergone some significant changes over the past five years. Federal and provincial institutions and governments have not been shy about introducing new regulations. After the housing retreat in early 2017, Ontario introduced a foreign buyers’ tax. The OSFI introduced new rules starting in 2018 that stipulated even uninsured buyers had to qualify with a stress test. Canada housing got off to a hot start in 2020, but the COVID-19 pandemic has hit the real estate industry hard.

Canada housing: Why the CMHC stepped in

Canadians have been hit hard by the pandemic. Unemployment has soared into the mid-teens, and many citizens are hurting. Fortunately, the federal government stepped in to provide relief with several radical programs. One of these saw the government push lenders to allow borrowers to defer mortgage payments. This past earnings season saw institutions like Scotiabank reveal that hundreds of thousands of clients had opted for loan deferrals.

The CMHC recently announced that it would ban the use of borrowed funds for a down payment. Moreover, it will also require a higher credit score from borrowers. The new criteria will come into effect on July 1. Economists predict that these new rules will have the most impact on first-time home buyers.

Will new lending rules slow things down?

History has shown that real estate brokers and agents have been able to boost activity, even in the face of tightening regulations. Bridgemarq Real Estate (TSX:BRE) provides various services to residential real estate brokers and REATORS across Canada. This is a stock to watch in this sector going forward.

Shares of Bridgemarq have dropped 20% in 2020 as of close on June 5. However, the stock is up 23% month over month. In the first quarter, the company saw revenues climb to $11.1 million over $10.1 million in the prior year. Management stated that the full impact of the pandemic had not yet shown itself in its results. Canada housing has taken a hit due to this crisis, but fundamentals are still strong. Demand remains high, and tighter regulations may increase urgency for those looking to enter the market as the economy reopens.

Bridgemarq stock last had a favourable price-to-earnings ratio of 11. The company has maintained its monthly dividend of $0.1125 per share. This represents a monster 12% yield. Bridgemarq is a solid target for Canada housing bulls right now.

Why investors should not get nervous

Sales activity has predictably taken a big hit, but investors should still feel confident in the Canada housing market. The federal government’s actions in pushing forward deferrals demonstrates their willingness to take unprecedented action to protect homeowners. This should spur investors to target stocks like Genworth MI Canada.

Shares of Genworth have fallen 26% in 2020 so far. However, the stock is up 16% over the past week. Genworth stock still boasts a very attractive P/E ratio of 7.5 and a price-to-book value of 0.9. The stock still pays out a quarterly dividend of $0.54 per share, representing a strong 5.9% yield. Genworth is a Canada housing-linked stock that can be trusted in the long term.

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. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »

stock analysis
Dividend Stocks

1 Dividend Superstar I’d Buy Over TD Bank Stock

TD (TSX:TD) stock may look undervalued, but there are reasons for the price drop. Meanwhile, this dividend superstar has more…

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

Down by 26.77%: Now Might Be the Perfect Time to Buy Nutrien Stock

This TSX stock has seen share prices fall by over 26% from its 52-week highs, but it might be the…

Read more »

Woman has an idea
Dividend Stocks

2 No-Brainer Stocks to Buy Now With $7,000

Two relatively cheap cash cows are no-brainer buys for investors with $7,000 to invest.

Read more »

dividends grow over time
Dividend Stocks

Buy This High-Yield Dividend Stock in July 2024

Buy this high-yielding dividend stock to lock in inflated yield into your portfolio to generate solid passive income for years.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Where Will Dollarama Stock Be in 3 Years?

Dollarama stock has done incredibly well during economic uncertainty, but what about when the markets recover in the next three…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA – 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Canadian stocks like Brookfield Corp (TSX:BN) can make wise TFSA holdings.

Read more »