Experts and analysts have been ringing warning bells for a Canadian housing market crash for the last few years. The call for a housing market crash is becoming louder each year, and many experts anticipated the COVID-19 pandemic to be the catalyst for the much-awaited and feared decline.
Earlier in 2020, several financial institutions expected the housing market to crash. The Canada Mortgage and Housing Corporation (CMHC), Fitch Ratings, and National Bank of Canada have also sounded their alarms.
With several bearish outlooks on the housing market crash, let’s discuss why housing prices might finally crash in 2021 and what you could do to protect your capital.
Why are experts predicting a housing market crash this year?
Analysts and experts have several reasons to predict a housing market crash in 2021.
A low supply in the market increases housing prices because of a high or even constant demand. Housing activity was slower in 2020, as fewer-than-normal people sold their homes. If the number of people selling homes returns to normal and the demand doesn’t increase to match, we could see a supply shock sending prices down.
Mortgage deferrals were a significant reason many homeowners affected by COVID-19 could hold onto their real estate investments. The mortgage deferrals expired in the fall, and that significantly increased the financial pressure on Canadian households.
Theoretically, Canadian homeowners unable to pay down their mortgages might prefer selling their homes instead of defaulting on their loans. It has not happened so far, but it is a possibility that could further increase the supply.
Despite all the risks that could lead to a housing crash, the low-interest-rate environment has consistently kept the market afloat. With interest rates remaining near all-time lows, Canadian investors find it relatively easier to borrow money for purchasing homes, making mortgages more affordable.
Safer real estate investment to consider
If you think that the low interest rates can keep the housing market afloat, you can consider investing in a home. If you want to invest in real estate but avoid exposing yourself to the risk of a housing market crash, you can consider investing in Northwest Healthcare Properties REIT (TSX:NWH.UN).
The real estate investment trust (REIT) can be an excellent investment to consider if you are interested in capitalizing on the real estate market without the housing market risk. It is a more liquid investment than buying real estate. NWH is a REIT that invests in a portfolio of properties rented by healthcare providers. It generates 80% of its revenues from government healthcare funding, virtually guaranteeing cash flows.
Its client base is primarily healthcare providers based in Canada and Europe. Healthcare is publicly funded in both regions, providing NWH with stable revenues.
Investing in a REIT like NWH allows you to capitalize on returns from the real estate market without the hassles of owning any real estate yourself. Unlike owning a home, you do not have to fix toilets, collect the rent from tenants, or to look after repairs. You can become a lazy landlord and continue generating funds that can grow your account balance.
Speaking of a housing market crash in 2021…
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.