Housing Crash: Will 2020 Finally Be the Year the Bubble Bursts?

A strong rebound in unemployment and job security could prevent the housing bubble from bursting in 2020. For investors wishing to boost household income, the National Bank of Canada is a dependable dividend payer.

| More on:
Photo of a floating bubble

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Is the housing bubble in Canada about to burst soon in 2020? The mandatory lockdowns due to COVID-19 slowed the housing market, which is typically busy during spring. Over the last decade, housing is among the country’s hottest sectors. Low interest rates and low unemployment were pushing property prices higher.

However, the economic situation has been changing since the onset of the pandemic. Interest rates remain incredibly low, but millions of Canadians are without work. The unemployment rate is in the double digits and averaging 11.77% from May to August 2020. Once government benefits end, home prices could fall.

Active market in 2020

According to the RE/MAX Fall Market Outlook Report, it’s unlikely for housing prices to fall. RE/MAX is the leading real estate organization in Canada. Its brokers and agents across the country expect the housing market to remain active, if not vibrant, for the rest of 2020.

Activities dropped by up to 70% year over year in March and April. However, housing markets in various regions bounced back in May and June, notwithstanding the COVID-19’s impact. Realtors see a spring-like market activity in fall.

Regarding housing prices, brokers and agents estimate a 4.6% increase in the third and fourth quarters of 2020. Likewise, there’s more interest in suburban and rural communities due to the changing dynamics in work and life.

Market on thin ice                                                    

The Canada Mortgage and Housing Corporation (CMHC) and the Macro Research Board (MRB) paint a bleak picture. Both believe a housing bust is inevitable because of an unstable market bubble and household credit binge. For MRB partners, the surging unemployment rate is a massive headwind.

CHMC sees Canadians holding off on home purchases due to job loss and uncertainties. The federal housing agency warns the pandemic and resulting lockdown of the economy could bring down the average home prices by between 9% and 18%. Likewise, it expects the housing sector to return to pre-coronavirus levels by year-end 2022.

Similar assessment

National Bank of Canada (TSX:NA) has the same assessment as the CMHC and MRB. The sixth-largest bank in Canada forecasts the sharpest recession drop (average 9.8% from 2020-21) for real estate prices ever. The bank’s estimate, however, is on the low end of CHMC’s forecast.

This $22.06 billion bank is holding up well in the pandemic. Before loan-loss provision and taxes, income went up in most of its business segments in the third quarter of the fiscal year 2020 versus the same period in 2019. Overall, the slide in net income was only 0.99%.

In terms of stock performance, National Bank is outperforming its bigger counterparts Toronto-Dominion Bank, Bank of Nova Scotia, and Bank of Montreal. If you’re looking for a long-term income stream, this bank stock is as reliable as the Big Five banks. The total return over the last 20 years is 1,138.96%, while the current dividend yield is 4.29%.

Avoiding the crash

The low interest rate environment and federal stimulus packages are very helpful to Canadians. However, the rebound in employment and job security must be strong, if not quick, to mitigate the risk of a housing crash in 2020 and beyond.

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. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

ETF chart stocks
Dividend Stocks

3 ETFs to Buy Now and Hold for Decades

Holding reliable growth ETFs for decades is one of the most tried and tested ways of building your wealth over…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Housing Affordability Is Out of Reach for Many Canadians

The interest rate hikes will cool the real estate market, but the housing affordability crisis would worsen, as homeownership and…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Oversold Great Canadian Dividend Stocks to Buy Now and Own for 20 Years

These top Canadian dividend stocks look oversold right now and continue to raise their payouts.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

3 Value TSX Stocks to Eye in July 2022

Here are a few value TSX stocks to check out in July 2022. They also pay juicy, safe dividend income…

Read more »

analyze data
Dividend Stocks

2 Canadian Stocks at the Top of My Buy List

Here are two of the top Canadian stocks on my buy list, as the market uncertainty continues to plague Canadian…

Read more »

money cash dividends
Dividend Stocks

TFSA Passive Income: 2 Top TSX Dividend Stocks to Buy on the Correction

These top dividend stocks look cheap to buy right now for a TFSA focused on passive income.

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Oversold TSX Stocks to Buy in July

Invests can now find good value right now in top TSX dividend stocks.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

2 Great TSX Stocks to Start a TFSA Retirement Fund During a Market Correction

These top TSX dividend stocks look cheap right now to buy for a TFSA retirement portfolio focused on passive income…

Read more »