If you’re looking to buy a home, are able to find something in your price range, and are ready to make a long-term commitment, you probably shouldn’t be put off by short-term market data, even if it does. seem concerning. But if you want your home to be an investment, be careful.
The housing market is scary
The housing market in Canada has been hot for years. When US home prices collapsed in 2008, Canadian real estate was spared. In the years that followed, domestic prices continued to rise, particularly in large metropolitan areas like Toronto and Vancouver.
“Canadians know that real estate prices have risen rapidly, but most have no idea how they stack up against the world,” said Best accommodation. “Real estate prices in Canada have increased almost three times faster than any G7 country since 2005.”
Analysts have warned that the Canadian housing market is deep in bubble territory, but there has been no shock to disrupt the party. The coronavirus could be the shock everyone dreaded.
Bank of Nova Scotia saw sales drop 42% and registrations 36%. Royal Bank of Canada reported that buying activity is 50% lower than 2019 levels. Bank of Montreal revealed that new ads are climbing faster than sales.
“The Canadian economy has been increasingly pulled over the past decade by the housing boom and debt-fueled excess consumption,” a report from Macro Research Board Partners noted. “In turn, a large housing and credit bubble has developed on the back of an overly accommodative policy. The increased uncertainty caused by rising unemployment and falling household confidence may prompt many Canadians to reconsider going beyond their means to move forward, ”the report concludes.
Buy this stock instead
Now it’s do not time to buy a home for investment reasons. Even if you think long term, it’s a scary time to take on large debt with fixed payments.
The best is to invest your capital in a property already plunged in value. Brookfield Real Estate Partners (TSX: BPY.UN) (NASDAQ: BPY) is a perfect fit.
Brookfield has some exposure to the residential housing market, but 80% of its portfolio includes office and retail space. These types of properties have been crushed due to the coronavirus pandemic. Businesses are working from home and retail stores remain depressed.
Unlike the Canadian housing market, however, Brookfield stock has already corrected. The stock is trading at 70% discount at its book value. As conditions normalize, the value of stocks could triple. Even if the recovery takes years, your returns could be substantial.
If you are buying a home, the return profile could be the opposite as residential prices remain artificially high. In addition, there are friction costs that keep you from entering and exiting the market quickly. With Brookfield stock, your flexibility is much higher.
For most Canadians, the choice is clear: resist buying a home. Instead, consider investing the capital in declining real estate stocks.
The stocks below are a better investment than a home.
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The Motley Fool recommends BANK OF NOVA SCOTIA and Brookfield Property Partners LP. Mad contributor Ryan Vanzo has no position in the stocks mentioned.