3 Stocks to Track as Housing Weighs Down GDP

The relatively slow housing market is weighing down the GDP, and if it starts to dip, the impact could be felt in many associated securities.

| More on:
House Key And Keychain On Wooden Table

Image source: Getty Images

Canadian real estate is slowing down. The boom that followed the pandemic and frantic buying trend is now turning into a more “paced” real estate market. The benefits of a relatively slow housing market might not manifest fast enough to make the property more affordable for an average Canadian, but its negative impact is already visible.

The real estate market (both rental and leasing) makes up about 13% of the GDP. And this is a hefty enough portion to weigh down the GDP if it starts to slide down faster.

As an investor, you might want to keep an eye on some businesses associated with the real estate market and pounce when the timing is right.

A management and consultancy company

WSP Global (TSX:WSP) is barely connected to Canadian real estate. The real estate consultancy and solutions are just one part of its offerings, but it’s not an inconsequential revenue source. In the second quarter of 2021, the company generated 18% of its Canadian revenue from its property and building segment (real estate).

Still, a major real estate crash has the potential to weigh down a company like WSP Global as well. And if you missed your chance of adding this powerful growth stock to your portfolio during the pandemic (when it dipped over 34%), a housing crash and the slight dip it might trigger in the stock would be in your favour.

A mortgage company

The relationship between the mortgages and the housing market is quite simple. More buyer activity is directly proportional to more mortgages, which is great for companies like MCAN Mortgage (TSX:MKP). The company happens to be an amazing buy right now, especially for dividend investors. It’s offering a mouthwatering 7.5% yield at an incredibly safe payout ratio of 42.3%.

It’s a relatively trustworthy stock as well, because it sustained its dividends during 2020 when its payout ratio crossed the 100% threshold for the first time in the decade. It also rewarded its investors with a special dividend in early 2021. And this amazing dividend stock is currently available for a heavily discounted valuation.

If the housing market crashes or slows down too much, the stock could dip quite a bit, which might push the yield into double digits. And if the company can maintain its dividends even then, it would be an amazing buy.

A real estate investment company

If you are looking for more direct exposure to the housing market, Tricon Residential (TSX:TCN) might be worth considering. The company owns about 33,000 single-family and multifamily homes in the U.S. and Canada. And since the bulk of its portfolio is concentrated in the U.S., the stock offers you clear exposure to the housing market but only limited exposure to the Canadian housing market.

Still, a sudden drop in prices or rents (which will affect the rental income the company relies upon for revenue) might push the stock down. This will be great for value investors and dividend investors alike because the stock’s current fair valuation will become a more attractive “undervalued bargain,” and the current 1.6% yield might rise to 2% or higher.

Foolish takeaway

Experts and economists have been warning about the housing bubble in Canada for several years now, and the current slowdown in market activity and price growth is significantly better than the crash many were predicting. But if a housing crash is coming (though there is a relatively small chance), it will bring down the real estate sector, and you will have access to a much larger pool of attractively valued dividend stocks.

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 owns shares of and recommends Tricon Capital.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »