Housing Crash 2020: 3 Signs Prices Will Come Tumbling Down

The housing market is posting record sales lately, although several factors could send prices tumbling down. For rental property buyers, investing in the Summit Industrial Income stock is safer and equally rewarding.

Will real estate prices in Canada nosedive in 2020 as the coronavirus-induced recession gets underway? The Canada Mortgage and Housing Corp. (CHMC) predict a fall of up to 18% over the next 12 months. If you were to believe CHMC’s assessment, the housing market is in trouble, and a crash is inevitable.

However, Big Banks and economists disagree with CHMC’s dire forecast. The Royal Bank of Canada, Bank of Montreal, and the Canadian Imperial Bank of Commerce see real estate prices declining between 5% and 10% this year compared to 2019.

Similarly, realtors doubt a dramatic price drop. The supply of homes for sale lags the demand by a wide margin. Also, there’s a strong return to sales inquiries that are keeping realtors busy again. So what are the signs that tell prices will tumble down?

1. Maximum impact of COVID-19

While nearly every city in Canada reported record sales in July, CMHC says the housing market remains fragile. Data doesn’t reflect the maximum impact of COVID-19, which should emerge in the coming months. The housing agency hopes the economy recovers sufficiently to counter the threat.

The COVID-19 pandemic whiplashed every facet of the economy but hasn’t thrown housing prices in disarray. Brokers report that demand is high while housing inventory is down in several markets. If the trend continues, real estate prices will remain relatively stable, and the worst price correction is a single-digit.

2. High unemployment                        

CMHC cites the high unemployment rate as another threat. If the numbers remain high, and job security is on the line, many potential buyers will hold off purchases. Only a few could afford to buy. In the long run, supply will catch up with demand. It will make prices affordable, especially to median households.

3. Bloated mortgage debt

The federal housing agency warns of a 10% to 12% increase in mortgage deferrals by September 2020. Bankruptcies and defaults will follow when the loan holiday expires. Homes prices could drop if new buyers cannot purchase at inflated prices, and sellers behind on mortgages will settle for a quick sale out of desperation.

Attractive option

Rental properties are great income sources. However, it’s not advisable to buy today, given the heightened uncertainty. Forego the purchase and become a proxy landlord by investing in Summit Industrial Income (SMU.UN). This $1.93 billion real estate investment trust (REIT) is an attractive option for income investors.

The key takeaway is that e-commerce is accelerating the value of Summit Industrial. This REIT is continually growing its portfolio of light industrial properties. Industrial, logistics, and warehouse properties are in high demand because they can serve as distribution centers for giant online retailers. Likewise, the REIT’s five-year return, excluding dividends, is 194.31%.

Summit Industrial is paying a 4.29% dividend. Assuming you have $150,000 for a rental property and invest it in this REIT instead, the income is $6,435. You don’t have maintenance, insurance, and other costs related to an outright purchase and there’s no vacancy risk.

Fatal mix

Canada’s housing market is resilient so far.  But the full impact of COVID-19, high unemployment, and bloated mortgage debt are a fatal mix. These factors are threatening the country’s long-term financial stability.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends SUMMIT INDUSTRIAL INCOME REIT.

More on Dividend Stocks

Senior uses a laptop computer
Dividend Stocks

A 4.9% Dividend Stock I Plan to Hold Long Term: What $5,000 Would Collect

This is a solid utility stock to consider on dips for a long-term portfolio with a focus on growing income.

Read more »

shopper carries paper bags with purchases
Dividend Stocks

Your GIC Pays 3% to 4%: This TSX Stock Pays You Every Month Instead

SmartCentres pays more income than an illustrative GIC, but a modest unit-price decline could erase the first-year advantage.

Read more »

the word REIT is an acronym for real estate investment trust
Dividend Stocks

REIT Investing: I’m holding SmartCentres for its 98.1% Occupancy

SmartCentres’ fundamentals remain solid. Besides high occupancy, rental growth and a high-quality tenant base are positives.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

How to Structure a TFSA With $14,000 for Lifelong Monthly Income

Your $14,000 TFSA can seed tax free monthly income for life. See how to begin a low-cost passive income stream…

Read more »

holding coins in hand for the future
Dividend Stocks

Turning 65 in 2027? Delaying CPP Could Pay You 42% More a Year

Waiting until 70 can increase CPP substantially, but the five-year funding gap deserves as much attention as the bigger cheque.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

What the Telus Dividend Cut Means for Your TFSA Income, and What to Do About It

Telus’s steep dividend cut has reduced TFSA income, but its debt-reduction strategy and growth efforts could make the stock worth…

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

TC Energy: Buy, Sell, or Hold in Late 2026?

A favourable demand environment and strong growth pipeline position TC Energy to deliver solid growth through late 2026 and beyond.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

I’d Put a Big Slice of My TFSA Into This 5.1% Dividend Stock

See why it could be a top TFSA dividend income pick for Canadian investors. Brookfield Infrastructure yields 5.1% and targets…

Read more »