Warning for 2022: Housing Market Could Fall Sharply Like Meme Stocks

The comparison of the red-hot housing market to meme stocks may not be accurate, but homebuyers and property investors should still remain cautious in 2022.

| More on:
Red siren flashing

Image source: Getty Images.

Real estate fever swept Canada in 2021, mainly due to historically low interest rates. However, despite the housing market’s resiliency amid a pandemic environment, the outlook for 2022 isn’t exactly rosy. RateSpy.com’s founder Rob McLister says it’s at risk of a significant correction due to extreme valuation and policy uncertainty.

McLister added the inevitable increase in interest rates next year is an essential factor that threatens market stability. The mortgage expert compared the situation to the meme stock frenzy. He said, “It’s like any other asset. You know, you see GameStop go up to US$300, that corrects real quick because prices get totally detached.”     

The uneasiness stems from the turbocharged home price growth, where prices have reached stupid levels, according to McLister. Because of inflated prices and the possible bubble burst, some investors will hold off buying real estate. Instead, they’ll invest in real estate investment trusts (REITs), an indirect but safer route.

Emeka Mayes, head of Canadian Capital Markets, Brokerage at Colliers Canada, said, “Overwhelmingly, I’d say the darling continues to be industrial real estate.” She further said most property investors place their capital on this sub-sector of real estate. 

More expensive homes in 2022

Economists predict the Bank of Canada will raise interest rates multiple times in 2022. The chief economist and managing director at BMO Financial Group Doug Porter said it could be five 25-basis point increases in lending rate, reaching 1.5% from the current 0.25%.

However, Re/Max Canada president Chris Alexander believes the Fed’s slow and gradual rate hikes won’t deter homebuyers. He said, “There will be a little less of a frenzy, but we’ll still see a very, very strong market.” His group predicted a 9.2% increase in the average residential price.

Meanwhile, the Canadian Real Estate Association (CREA) projected a 12.1% decline in sales, although it said 2022 could still be the second-best year on record for home sales. However, the association said home prices would be more expensive due to historic low housing inventories.

Top industrial REITs

Industrial REITs are stable performers in 2021 — notably, Nexus (TSX:NXR.UN) and Dream Industrial (TSX:DIR.UN). Investors in both stocks are mock landlords in high-quality industrial real estate. The attractive dividend yields are safe and sustainable due to the rise of e-commerce and very low vacancy rates.

Nexus is perhaps the top choice, because of the stock’s stellar performance. At $12.63 per share, the year-to-date gain is an incredible 70.63%. The $704 million growth-oriented industrial REIT currently pays a 5.18% dividend. While it leases office and retail properties, 69 (65.7%) of the total 105 income-producing assets are industrial.

Dream Industrial isn’t a high flyer like Nexus, but investors are content with the 33.82% year-to-date gain ($16.90 per share) and the 4.14% dividend. This $3.81 billion REIT has 326 properties scattered in key markets in Canada, the U.S., and Europe.

In the nine months ended September 30, 2021, net income soared 252.69% to $418.37 million versus the same period in 2020. Dream Industrial continues to scale, particularly in Europe. The strong demand from high-quality tenants is why rental rate growth is significant. 

Undue comparison

Starlight Capital’s CEO Dennis Mitchell disagree with the comparison to meme stocks. He said if the labour market continues to rise, there should be no significant housing market correction.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends DREAM INDUSTRIAL REIT.

More on Dividend Stocks

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »

stock analysis
Dividend Stocks

1 Dividend Superstar I’d Buy Over TD Bank Stock

TD (TSX:TD) stock may look undervalued, but there are reasons for the price drop. Meanwhile, this dividend superstar has more…

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

Down by 26.77%: Now Might Be the Perfect Time to Buy Nutrien Stock

This TSX stock has seen share prices fall by over 26% from its 52-week highs, but it might be the…

Read more »

Woman has an idea
Dividend Stocks

2 No-Brainer Stocks to Buy Now With $7,000

Two relatively cheap cash cows are no-brainer buys for investors with $7,000 to invest.

Read more »

dividends grow over time
Dividend Stocks

Buy This High-Yield Dividend Stock in July 2024

Buy this high-yielding dividend stock to lock in inflated yield into your portfolio to generate solid passive income for years.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Where Will Dollarama Stock Be in 3 Years?

Dollarama stock has done incredibly well during economic uncertainty, but what about when the markets recover in the next three…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA – 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Canadian stocks like Brookfield Corp (TSX:BN) can make wise TFSA holdings.

Read more »