Real Estate Investors: 2 Stocks to Avoid the “Double” Bubble

According to some experts, the Canadian real estate market is experiencing a “double bubble.” Read on to find out what it is and how it impacts your investments.

| More on:
Photo of a floating bubble

Image source: Getty Images.

The feds in the U.S. have something called the “Exuberance” index for the global housing market. It’s when a housing market grows to levels that are beyond the norm enough to be considered exuberant. The results are shared quarterly, and Canadian real estate has been coming up “exuberant” for the last five consecutive quarters. That’s one bubble.

And if we stretch back farther, the Canadian market has been exuberant for a very long time — at least six years. Now, there is just one quarter between the current five-month-long exuberant bubble and the mad market before it. This has created an effect that some experts call a double bubble — i.e., a new bubble forming over the old one that has been blowing up for the last six years.

If we discard that one quarter, it can be considered one giant bubble that has been six years in the making. But it doesn’t matter if it’s a double bubble or one colossal bubble; the correction relative to size will either be brutal or relatively long term to bring prices back to the realm of reality. And if that’s something you wish to shield your portfolio from, two stocks should be on your radar.

A real estate service company

Real estate, even the residential segment, is more than just about buying and selling properties. There is a lot of activity besides the usual transactions, and that’s why investing in a company like FirstService (TSX:FSV)(NASDAQ:FSV) might not be a bad idea when you are trying to stay safe from a housing fallout. Another reason is FirstService’s footprint, which is significantly more robust in the U.S. than in the country.

And even though the company recently joined the ranks of aristocrats, it’s the capital-growth potential it offers that has the potential to attract investors. Its five-year CAGR of 33%, augmented by the consistency of growth, makes it an ideal growth stock. That level of growth, however, usually comes with a heavy price tag, and FirstService is no exception.

A commercial REIT

Another way to avoid an impending “housing crisis” is to invest in commercial real estate — ideally, real estate with an international footprint, and Granite REIT (TSX:GRT.UN) offers this powerful combo. Granite is mainly focused on light industrial properties (logistics, warehouses, etc.), and a sizeable chunk of its revenues comes from e-commerce activities.

That’s another factor endorsing Granite’s growth potential. The REIT has already proven itself in the growth and even the dividend realm. Its 10-year CAGR is 18.4%, and it’s currently undervalued. It also comes with an attractive 3.1% yield, and the payouts are expected to grow in the future since the REIT is an aristocrat.

Foolish takeaway

Both Granite and FirstService are robust growth stocks. Thanks to the nature of their business and the footprint, both are relatively safe, even if the housing market crashes. They might experience a dip, but it might not be a bad thing. This will allow you to buy them at an even better price than you can get them for now.

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 FirstService Corporation, SV and GRANITE REAL ESTATE INVESTMENT TRUST.

More on Dividend Stocks

Retirement plan
Dividend Stocks

Planning for Retirement? Here Are the Best Canadian Dividend Stocks to Buy

Buying two of the best Canadian dividend stocks now for the long term can help you retire without financial worries.

Read more »

investment research
Dividend Stocks

A Dividend Giant I’d Buy Over TD Bank Stock

Energy and financials are the TSX’s sector heavyweights, but I’d choose a dividend giant in the former over a big…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

2 Dividend Stocks Worth a Permanent Spot in My TFSA

Restaurant Brands International (TSX:QSR) and Berkshire Hathaway (NYSE:BRK.B) are two of my top TFSA holdings that I intend to hold…

Read more »

Increasing yield
Dividend Stocks

3 Canadian Dividend Stocks Offering High Yields and Reliable Income

These valuable dividend stocks offer solid deals right now, with ultra-high yields that will certainly last well beyond this downturn.

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

Best of Both Worlds: 3 Growth Stocks That Also Pay Dividends

Dividend stocks are great until a downturn ends. But luckily, these three dividend stocks also offer a massive amount of…

Read more »

Payday ringed on a calendar
Dividend Stocks

Monthly Passive Income: 2 Top TSX Dividend Stocks to Buy in June 2023

Here are two of the best TSX monthly dividend stocks you can buy in June 2023.

Read more »

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

RRSP Wealth: 2 Great Canadian Dividend Stocks to Buy in June 2023

Top TSX dividend stocks are now on sale.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Retirees: 2 TSX Dividend Stocks That Reliably Pay You Cash

With strong underlying businesses, high-yielding dividends, and stable cash flows, these two TSX stocks can be excellent investments to consider.

Read more »