Breaking down its portfolio, about 40% is office space, with another 40% being retail locations. The remaining 20% is a mishmash of assets, including student housing, multi-family homes, etc.
Brookfield stock is a great way to assess the overall health of the real estate market. How have stocks evolved since the start of the year? They are more than 60% lower. Ouch.
Here’s the strange thing: The Canadian housing market has not been affected. Indeed, house prices have barely budged. To be sure, single-family homes are different from office skyscrapers, but it’s strange to see one section of the market tank while another part is completely unscathed.
This period of asymmetry may be over. There are some clear data points that should make you nervous.
The data is mixed
Unsurprisingly, the housing market plunged deeply in March and April. Almost everything did. Sales fell off a cliff as overall trading volume hit historic lows.
This sudden and dramatic fall set a very low bar to clear. Over the past few months we have seen activity climb back to normalized levels.
July actually set an all-time high, with 62,355 transactions across the country. This month’s sales were tripler what they were in April.
“Remember before the lockdowns we were heading into the tightest spring market in almost 20 years,” said Shaun Cathcart, senior economist at the Canadian Real Estate Association. “At the end of the day, the market we see right now is largely the same one we were heading into in March.”
But we are not out of the woods yet.
The Canada Mortgage and Housing Corporation is forecasting an 18% drop in house prices this year. Several large banks report that their internal data suggests problems ahead.
Should you be afraid?
The housing market is scary
It really is a simple game. House prices in Canada remain stable. After a dramatic fall, trading volumes are rebounding. But with other markets feeling a ton of pain – Brookfield’s stock is testimony to that – it’s reasonable to be wary of the future.
Here is what you need to do.
First, get your financial situation in order. Seriously. It’s always a good time to do this, but if you own a home, now is critique. Mortgage payments are fixed and could persist for decades. Your income levels, meanwhile, are subject to change, especially with all the economic volatility going on.
Analyze your biggest personal finance risks. Take action to improve your situation, even if you are already in a position of strength.
Your second element of action is to examine your investment portfolio. If you own a real estate portfolio, you are probably already in pain. However, other areas of the market are approaching all-time highs.
Even if you maintain a horizon of several decades, determine how your portfolio will be affected by the housing collapse in Canada. Anything that depends on real estate or consumer spending is particularly at risk.
Finally, make sure you own stocks that can perform well regardless of the real estate market. Our top picks are below.
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The Motley Fool recommends Brookfield Property Partners LP. Mad contributor Ryan Vanzo has no position in the stocks mentioned.