Housing Crash: Here’s Why It Could Happen This Year (and How to Protect Yourself)

Buy Northwest Healthcare Properties REIT to safeguard your capital from the effects of a housing crash on the real estate market.

| More on:
edit Back view of hugging couple standing with real estate agent in front of house for sale

Image source: Getty Images

The Canadian housing market defied all odds and expectations as it rallied to new all-time highs despite the economic fallout from the COVID-19 pandemic in 2020. The rallying housing market has always done well for well over a decade, growing faster than most housing segments in real estate markets worldwide.

Analysts and experts expected 2020 to be the year that the housing prices finally corrected. Still, the challenging circumstances were not enough to deter Canadians from investing in residential real estate, making valuations keep rising.

The higher they rise, the harder they fall

Experts from the Royal Bank of Canada are predicting that 2021 could be another record-breaking year amid the historically low interest rates, increased household savings, and improving consumer sentiment. However, the more the prices rise, the worse the correction could be.

  • Mortgage deferrals expired in the fall of 2020, and Canadians will gradually run out of stimulus money. Many homeowners might prefer selling their real estate investments instead of defaulting on their loans.
  • Experts from several institutions like the Canada Mortgage and Housing Corporation (CMHC) are predicting significant price corrections due to inflated home values.
  • There is a lower number of listings on the market right now. If the number of listings goes up to regular levels and the demand does not increase to match, homeowners in need of immediate money might be forced to sell their real estate investments for lower prices.

It can take just one reason to light the fuse that will see a domino effect resulting in a housing market crash.

Safer real estate investment to consider

If you are interested in investing in the real estate market but you do not want to risk tying up significant capital in a house, you can consider buying Real Estate Investment Trusts (REITs) like NorthWest Healthcare Properties REIT (TSX:NWH.UN). It can be an excellent alternative to buying a home to get investment returns without putting your capital at significant risk if there is a housing sector crash.

The company invests in a portfolio of globally diversified properties, distributed mostly across Canada and Europe. Its tenants are primarily healthcare providers, ranging from offices to hospitals. NorthWest Healthcare Properties is a defensive real estate asset because the government virtually guarantees its income in both its major regions.

Healthcare is publicly funded in Canada and Europe. It means that NWH can generate strong cash flows through rent collection. The company retains a robust 97.2% occupancy rate that allows the company to earn significant money that it can use to finance its dividend payouts comfortably. The REIT is trading for $13.01 per share at writing and pays its unitholders at a juicy 6.08% dividend yield.

Foolish takeaway

There are chances that a housing market correction might not take place this year. However, the rising prices also keep increasing the risk to your capital if a correction occurs. If you want to buy a home as an asset for investment returns, I would suggest considering REITs as a better alternative, at least until prices come back down.

NorthWest could be an excellent asset to park your funds and get decent returns while you wait for the housing market to become more agreeable.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.

More on Dividend Stocks

value for money
Dividend Stocks

Canadian Tire Is Paying $7 per Share in Dividends. Time to Buy the Stock?

With Canadian Tire trading ultra-cheap and offering a safe dividend yield of more than 5.5%, is it one of the…

Read more »

Payday ringed on a calendar
Dividend Stocks

Secure Your Future: Top 2 Monthly Dividend Stocks to Buy in 2024

Here are two top Canadian monthly dividend stocks you can buy today to minimize risks to your portfolio.

Read more »

woman data analyze
Dividend Stocks

Passive Income: How Much to Invest to Get $6,000 Each Year

Have you ever wondered how much to invest to get $6,000 in passive income? It's easier than you think, and…

Read more »

Dividend Stocks

A Dividend Giant I’d Buy Over Suncor Right Now

Suncor stock is a TSX energy giant that trades at a compelling valuation while paying shareholders a tasty dividend yield.…

Read more »

oil and natural gas
Dividend Stocks

3 No-Brainer Dividend Stocks to Buy Right Now for Less Than $200

These dividend stocks could continue to increase dividends and enhance shareholders’ returns.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Here’s the Average CPP Benefit at Age 65 in 2024

Dividend stocks like Fortis Inc (TSX:FTS) can supplement the income you get from CPP.

Read more »

Airport and plane
Dividend Stocks

Is Air Canada a Buy, Hold, or Sell?

Air Canada (TSX:AC) stock is very cheap. Does that make it a buy?

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Invest $100 Each Month to Create $260.79 in Passive Income in 2024

Investors who only have a bit to put aside should certainly consider this ETF. It offers you the passive income…

Read more »