Alert: Is the Canada Housing Market About to Crash?

The Canada housing market and stocks like Genworth MI Canada Inc. (TSX:MIC) have surged in the summer, but the CMHC expects that troubling times are coming.

The Canada housing market entered 2020 with the wind at its back. It had rebounded nicely in 2018 and 2019, with prices and sales activity both on the incline. This sector has been the target of bearish sentiment on many occasions over the last decade. When the COVID-19 outbreak reared its head in Canada, many were convinced that this would be the catalyst for the long-anticipated Canada housing crash.

So far, that pullback has not materialized. On the contrary, Canada housing activity stormed back in the late spring and summer. Earlier this month, I’d discussed whether we were heading for a Canada housing crash. I want to revisit that key question in this article.

Is the Canada housing market vulnerable in late 2020?

A recent poll from Nanos Research suggested that Canadians are still optimistic about the housing market. In the poll, about 44% of respondents said that they expect the value of real estate in their neighbourhood to go up over the next six months. That is the highest percentage since the pandemic inspired government intervention in March.

The Canada Mortgage and Housing Corporation (CMHC) is not as optimistic. In a recent report, the agency predicted that home prices across Canada could fall about 7% in 2021. It expects unemployment to play a role in cooling a red-hot real estate sector. CMHC has had a reasonably strong record when it comes to past forecasts.

There is reason to be concerned about the broader economy. Fears of a second wave of COVID-19 have spurred renewed restrictions in select regions across Canada. A return to a lockdown-like environment will slam the brakes on what was already a tepid recovery in the summer.

Two housing stocks that have stormed back this year

This would be sad news for several Canada housing stocks that have stormed back in the last few months. Genworth MI Canada (TSX:MIC) is the largest private residential mortgage insurer in the country. Its shares have dropped 28% in 2020. However, the stock is up 5.6% over the last three months. It has slipped 3% in the month-over-month period.

The nature of its business has made Genworth a consistent play for defensive-minded investors. Rising activity in the Canada housing market tends to bode well as Genworth benefits from more volume. For those willing to bet against CMHC, this stock is enticing. Its shares last possessed a price-to-earnings ratio of 7.4 and a price-to-book value of 0.8. This puts the stock in very attractive value territory. Moreover, it offers a quarterly dividend of $0.54 per share, representing a tasty 6.2% yield.

Bridgemarq Real Estate provides services to residential real estate brokers and REALTORS across Canada. Its shares have climbed 11% over the last three months. This stock also boasts a favourable P/E ratio of 14. Moreover, it offers a monthly dividend of $0.113 per share. This represents a monster 10% yield.

Conclusion: Should you expect a Canada housing crash?

Speaking of realtors, RE/MAX released a firm rebuttal to the CMHC’s report this month. The real estate firm said that CMHC’s outlook no longer aligned with the current state of the Canada housing market. It cited activity in the Greater Toronto Area (GTA), where sales were up 217% in August. This was 110% over the 10-year average. Though there are troubling signs in Prairie provinces, RE/MAX expects a strong market in major metropolitan areas like Toronto and Vancouver to offset this decline.

As for myself, I fall closer to the middle. Yeah, yeah, it’s a cop out. I know. Regardless, the Canada housing market still possesses strong fundamentals when it comes to demand. However, the Canadian economy is facing dire challenges in the months and probably years ahead. Beyond unemployment, new benefits and a revamped Employment Insurance program also have a time limit. This means the avalanche of defaults expected after the termination of CERB may have only been delayed for six months or so.

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

More on Dividend Stocks

Person holds banknotes of Canadian dollars
Dividend Stocks

My 3 Favourite Stocks for Monthly Passive Income

Backed by healthy cash flows, compelling yields, and solid growth prospects, these three monthly paying dividend stocks are well-positioned to…

Read more »

coins jump into piggy bank
Dividend Stocks

Here’s the Average Canadian TFSA at Age 50

Canadians should aim to maximize their TFSA contributions every year and selectively invest in assets that have long-term growth potential.

Read more »

how to save money
Dividend Stocks

Here’s Where I’m Investing My Next $2,500 on the TSX

A $2,500 investment in a dividend knight and safe-haven stock can create a balanced foundation to counter market headwinds in…

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

This 6.1% Yield Is One I’m Comfortable Holding for the Long Term

After a year of dividend cuts, Enbridge stock's 6.1% yield stands out, backed by a $35 billion backlog and 31…

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

1 Magnificent Canadian Dividend Stock Down 59% to Buy for Decades

A battered dividend stock can be worth a second look when the core business is still essential and the dividend…

Read more »

stocks climbing green bull market
Dividend Stocks

Why I’m Letting This Unstoppable Stock Ride for Decades

Brookfield (TSX:BN) is a stock worth owning for decades.

Read more »

Piggy bank on a flying rocket
Stocks for Beginners

Where to Invest Your $7,000 TFSA Contribution for Long-Term Gains

Looking for where to allocate your TFSA contribution? Here are two options to direct that $7,000 where it will give…

Read more »

A plant grows from coins.
Dividend Stocks

3 Reasons I’ll Never Sell This Cash-Gushing Dividend Giant

Here's why this dividend stock is one of the most reliable companies in Canada, and a stock you can hold…

Read more »