The Canadian housing market is continuously a confusing part of the economy. The high-risk real estate segment has managed to elude the price corrections that analysts and experts have been predicting for years. For the third year in a row, Toronto has been named among the at-risk housing price bubbles worldwide.
According to the latest UBS Global Real Estate Bubble Index, Toronto is the third most at-risk housing bubble behind Munich and Frankfurt. It is the only North American city among the cities which are most vulnerable to a major correction.
Unlike the previous years that Toronto has been in the UBS report, this year could finally be the time that the bubble bursts and sends housing prices crashing down in Toronto and the rest of the country.
The Toronto Regional Real Estate Board (TRREB) released data to support the troubling situation. Based on TRREB’s data, the average selling price of homes in the Greater Toronto Area (GTA) has reached alarming levels. In August 2020, the average selling price of residential real estate in GTA reached $1,000,000 with a 20% year over year increase.
Detached properties have even higher average prices touching the $1.2 million mark. Canadian housing outside GTA is also becoming expensive. Royal LePage predicted that median housing prices in the country could rise to $700,000 by the end of the year.
Rising debt levels
Mortgage debt is generally a good debt in better financial circumstances. Taking on a debt that will result in you owning something that has immense long-term value makes sense. However, the Canadian debt load has significantly grown over the years. The total debt for Canadians is growing alarmingly faster than the gross domestic product (GDP).
The economy is barely beginning to recover from the effects of the pandemic. The mortgage debt to GDP ratio a decade ago was 59.02%. The ratio in Q2 2020 was 84.28%. This is an unprecedented level that indicates a housing market crash could happen at any time.
Protecting yourself from a housing crash
A significant price correction could have a ripple effect that could well send entire stock market crashing. You need to consider making defensive money moves to protect yourself from the effects of a housing crash. I would advise considering a stock like Alimentation Couche-Tard (TSX:ATD.B) to protect your capital in case a market crash happens.
Alimentation is a multinational convenience store operator with more than 14,000 locations worldwide. It is an essential business that can continue generating revenue despite a faltering economy. Additionally, its international exposure can offset any losses from domestic operations to protect its revenue.
The company has enjoyed significant success over the last few years through its aggressive expansion strategy. The company sports a solid balance sheet that it is using to continue funding acquisitions and growth.
Canadians are alarmingly over-leveraged in 2020. The worsening debt crisis, along with the housing bubble, could finally send the housing market reeling from decades-long high prices. It is crucial to protect your capital by considering defensive investments that can weather the incoming storm.
I think that stocks like Alimentation Couche-Tard could provide you with sufficient protection from the headwinds of a housing market crash.
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.