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Money Housing Crash: Buy or Sell REITs?

18:43  22 may  2020
18:43  22 may  2020 Source:   fool.com

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a close up of text on a black surface: Pixelated acronym REIT made from cubes, mosaic pattern © Provided by The Motley Fool Pixelated acronym REIT made from cubes, mosaic pattern

For the better part of the last decade, the Canadian housing market has been on a constant upward trajectory. With the price of residential properties in major Canadian cities like Vancouver and Toronto reaching new highs year after year, there was fear of a housing bubble. Analysts have been warning us of a housing market crash for years.

How is the situation unfolding? Should you buy or sell real estate investment trust (REIT) stocks? I am going to discuss the state of affairs and give you my answer to that question.

The lockdown and housing market

The Canadian economy is going through its most challenging period since the 2008 financial crisis. With a lockdown in effect, millions of people have been laid off. The average Canadian household was already struggling with an unfavourable debt-to-income ratio. Losing jobs as a direct or indirect result of the pandemic has put Canadians’ financial health in an even more precarious position.

Shutdown of tent cities a chance to change housing policy, advocates say

  Shutdown of tent cities a chance to change housing policy, advocates say VANCOUVER — T.J. Lovell had just 30 minutes to pack up his belongings from the tent city in Oppenheimer Park if he wanted access to a hotel room that he could share with his father. Lovell, who camped in the tent city for two months, was one of about 300 homeless people who have been living at the park due to a lack of affordable housing before he was moved to a hotel in downtown Vancouver. "The rooms we have are nicer than most places I'veLovell, who camped in the tent city for two months, was one of about 300 homeless people who have been living at the park due to a lack of affordable housing before he was moved to a hotel in downtown Vancouver.

The housing market’s safety came into question with rising fears of loan defaults, including mortgage payments. The inability to manage the cash flow for mortgage debts might see Canadian property owners sell properties they cannot afford. The result is a flood of new listings on the market while there would be nobody to buy up houses.

Buy or sell REITs?

With the situation leaning more toward a crash in the housing market, REITs might seem less than attractive for investors. However, not all real estate sector assets are at significant risk due to the market meltdown. There are solid REITs that can come out of the situation relatively unscathed. If you find the right stock, you can buy REITs instead of entirely removing yourself from exposure to the real estate industry.

Family of pilot who survived Snowbirds crash thanks Kamloops for outpouring of support

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Choice Properties REIT (TSX:CHP.UN) is a stock that I can peg to be the type of REIT to protect investor capital during a housing market crash.

The housing market crash can cause significant losses for the residential real estate segment. However, the commercial real estate segment can perform better since its revenue does not relate directly to residential real estate. Choice Properties can be ideal for investors due to its portfolio of commercial real estate properties.

Among its most substantial tenants is Loblaw, the largest grocery store chain in the country. With most businesses suffering during the crisis, grocery stores are faring better. The essential nature of the business is allowing companies like Loblaw to generate decent revenue, allowing it to pay the rent.

If a housing market crash happens, Choice Properties will likely see a decline in share prices. However, the REIT might not have a problem bouncing back since it has Loblaw supporting its revenue. CHP has also invested in condos and offices on properties above Loblaw locations that drive up the potential income it can earn from those assets.

WARNING: Canada’s Housing Bubble Could Burst in 2020

  WARNING: Canada’s Housing Bubble Could Burst in 2020 CIBC (TSX:CM)(NYSE:CM) may look cheap, but it is a stock that investors should avoid if they're worried of a Canadian housing market crash. The post WARNING: Canada’s Housing Bubble Could Burst in 2020 appeared first on The Motley Fool Canada.

Foolish takeaway

Choice Properties enjoys a decent occupancy rate. In its most recent quarterly earnings report, CHP revealed that it has $79 million in cash and $1.2 billion in excess liquidity. At writing, the REIT is trading for $11.97 per share, and it is down by almost 13% from its price at the beginning of 2020.

If a housing market crash occurs, I think it could lead to lower prices all around for REITs. It could open up the opportunity to buy a healthy REIT like CHP for a bargain. I would, however, recommend staying away from residential REITs right now.

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Fool contributor Adam Othman has no position in any of the stocks mentioned.

The post Housing Crash: Buy or Sell REITs? appeared first on The Motley Fool Canada.

Builders have confidence in Edmonton's housing market .
Edmonton’s home builders remain hopeful and somewhat optimistic. They had a challenging year in 2019 due to the low price of oil and economic turmoil in Alberta. But they’re taking the perspective that the glass is half full after a surprisingly good beginning to 2020. “Our housing industry had a strong January, February and March,” said Marie Soprovich, president of the Canadian Home Builders’ Association-Edmonton Region in an interview prior to the association’s Awards of Excellence event to honour local home builders. “When you look at those housing starts they’re up from last year. We had a strong start to 2020, which is very encouraging.

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