3 actions to follow as housing weighs on GDP
Written by Adam Othman at The Motley Fool Canada
Canadian real estate is slowing down. The boom that followed the pandemic and the frenzied buying trend is now turning into a more “rhythmic” real estate market. The benefits of a relatively slow housing market may not manifest quickly enough to make home ownership more affordable for an average Canadian, but the negative impact is already visible.
The real estate market (both rental and leasing) accounts for around 13% of GDP. And that’s a portion heavy enough to weigh on GDP if it starts to drop faster.
As an investor, you may want to keep an eye out for certain businesses associated with the real estate market and take the plunge when the time is right.
A management and consulting company
WSP World (TSX: WSP) is barely connected to Canadian real estate. Consulting and real estate solutions are only part of its offerings, but it is not an unimportant source of income. In the second quarter of 2021, the company generated 18% of its Canadian revenues in its properties and buildings (real estate) segment.
However, a major real estate crash could also weigh on a company like WSP Global. And if you missed your chance to add this powerful growth stock to your portfolio during the pandemic (when it fell over 34%), a real estate crash and the slight dip it could trigger in the stock would be. in your favor.
A mortgage company
The relationship between mortgages and the housing market is fairly straightforward. More buyer activity is directly proportional to more mortgages, which is great for businesses like MCAN mortgage (TSX: MKP). The business is turning out to be an amazing buy right now, especially for dividend investors. It offers a tantalizing 7.5% return at an incredibly secure 42.3% payout rate.
It’s also a relatively trustworthy stock, as it maintained its dividends in 2020 when its payout ratio crossed the 100% threshold for the first time in a decade. He also rewarded his investors with a special dividend in early 2021. And this incredible stock of dividends is currently available for a heavily discounted valuation.
If the real estate market collapses or slows down too much, the stock could dip a bit, which could push the return into double digits. And if the company can maintain its dividends even then, that 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 approximately 33,000 single and multi-family homes in the United States and Canada. And since most of its portfolio is concentrated in the United States, the stock gives you clear exposure to the real estate market but only limited exposure to the Canadian real estate market.
Nonetheless, a sudden drop in prices or rents (which will affect the rental income on which the company relies for its income) could lower the title. This will be great for value investors and dividend investors as the current fair valuation of the stock becomes more attractive.undervalued case”And the current return of 1.6% could reach 2% or more.
Pundits and economists have been warning of 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 anticipated. But if a real estate crash is ahead (although there is a relatively small chance) it will bring down the real estate industry and you will have access to a much larger pool of attractively valued property dividend stocks.
The article 3 actions to follow as housing weighs on GDP first appeared on The Motley Fool Canada.
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Foolish contributor Adam Othman has no position on any of the stocks mentioned. The Motley Fool owns shares and recommends Tricon Capital.