One significant indicator that the Canadian housing market is in trouble is that at least two Canadian banks have already revised their forecasts about the market and have pumped up the correction projections. Investors are already scaling back, and it’s already affecting associated industries, like construction and development.
This may be a sign that a wide variety of real estate stocks might feel the adverse impact of the brutal housing market correction. And it wouldn’t be a stretch to say that every stock associated with the residential housing market might be in for a rough ride. And two of them stand out from the crowd.
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A Calgary-based REIT
Boardwalk REIT (TSX: BEI.UN) is a residential REIT and has about 33,000 residential units on its portfolio spread out over 200 communities across Canada. The REIT operates through three different business divisions, though this operational diversification may not prevent the REIT from being affected by the rough housing market.
In a regular, healthy market, the REIT is a better pick for growth than dividends, but it’s not a consistent grower. The cyclical growth it offers can be beneficial for short-term gains.
As for the dividends, the stock is currently trading at a discount of about 21.7%, and the REIT has increased its payouts (though only slightly) in 2022, but the yield is still at just 2.2%. It’s paltry for a REIT. One positive regarding dividends is the incredibly safe payout ratio of under 10%. However, if the REIT suffers a significant enough blow from the housing market, the yield may go up to a more attractive level.
A Vancouver-based development company
Few development companies are rooted as deeply in the communities they started from, or the ones they serve as Wall Financial (TSX: WFC) is in Vancouver. It has been around for over five decades and has made significant contributions to the Vancouver skyline. The company focuses on the development of mixed-use properties, combining both residential and commercial “wings” of the real estate market.
Its track record, when it comes to residential properties, is quite attractive as well. The company has developed 25,000 homes and over 15,000 rental units so far. The current portfolio consists of 23 completed and one under-development property.
The capital-appreciation potential of the stock is decent enough, but it fluctuated quite violently in the two years preceding the pandemic. It peaked around Jan 2020, and it’s rapidly declining since then. The housing market situation may only expedite its current decline, and you may consider buying the dip for a powerful, organic recovery.
Foolish takeaway
Real estate investing, especially in residential assets, might be a risky endeavour right now. It’s too soon to predict how fast and how far will the housing market fall and what sort of repercussions it would have for real estate stocks like the two above.
