Recessions, regardless of the scale, have become a cyclical phenomenon. And though the instigator of every recession may be different, the financial onslaught is usually the same. Almost every sector is affected in one way or another. Some companies experience a lurch in the progression, while others hit rock bottom. Some sectors are swift to recover, while others take a very long time to get to pre-recession levels.
One thing that investors — especially value investor and long-term proponent of long-term holdings, Warren Buffett — love about recessions is the chance of buying amazing companies at amazing prices. But stocks aren’t the only asset class that trades for low prices during a recession.
Property prices across the country didn’t behave the way that many Canadians believed they would in the market crash. Average prices did take a dip in May, but they have been on the rise ever since. The median price rose substantially from May, and the market is seeing more activity than it did in the peak COVID-19 months.
A recession is likely to change all that. Canada’s housing bubble has been itching to burst for months now, and if the pandemic didn’t do the trick, the ensuing recession might. It’s hard to predict how deep the housing would plunge if a recession hits. The recovery might not be swift, because the purchasing power of the public and economy are both already weak from the pandemic, which might offer investors plenty of time to locate and buy the right assets.
Whether you plan to start a rental income or you are planning to capitalize on the capital growth of assets, it’s a good idea to start your research on the property market. If a recession comes, you may benefit from low prices and lower interest rates.
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Buying stocks when the market hits rock bottom during a recession is how many investors made fortunes. The strategy is predicated upon the fact that almost all companies, even those who have a sure chance of recovery, suffer during a recession and devalue. You can get some insights on the recovery potential of different stocks by observing the patterns of March crash and subsequent recovery.
Canadian Apartment Properties REIT (TSX:CAR.UN) fell 38% in March. Its recovery has been relatively slower compared to some other growth REITs that have already reclaimed their start of the year valuations. So, if a recession hits, the stock might drop down over 50% from its pre-pandemic value. It was an aristocrat that increased dividends for eight consecutive years. But this year, it hasn’t increased its dividends.
Dividends still fall comfortably under the company’s earnings, as evidenced by the payout ratio of 20.8%. The company has a strong balance sheet, and despite its debt-heavy nature, the stock is likely to live through a recession without much damage. As an apartment-centric company, it might not face dire consequences, even if the housing bubble in the country bursts.
Getting rich during a recession is easy, but it requires two things: sufficient liquidation and identifying the right assets. If you’re not sure when the recession will fully bloom, you can start getting ready. That means improving your liquidity to allow yourself some buying freedom and researching real estate and the stock market to find the perfect assets that you want to invest in when market devalues.
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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 Adam Othman has no position in any of the stocks mentioned.