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Earlier this week, I discussed whether the Canadian housing market was heading for a correction. The Canadian real estate sector benefited from a historically low interest rate environment. However, the Bank of Canada (BoC) has hinted that it intends to proceed with rate hikes in the coming months. Canada’s inflation rate hit a 20-year high of 4.7% in October. This will almost certainly increase the urgency for policy makers.
Today I want to discuss why the bull run in the Canadian real estate market will continue into 2022 and beyond. Its fundamentals remain very strong, even in the event of a few modest rate hikes.
Housing in Canada Grows in October
The Canadian Real Estate Association recently declared 2021 to be the busiest year on record for the Canadian housing market. In addition, house prices have also reached historic highs. The average selling price of a home sold on the multiple listings service, which represents more than 100,000 real estate agents, increased 18% year over year to $ 716,585.
Canadians are no strangers to real estate price inflation. However, sales are also on the rise. In October, home sales climbed 8% from September. Data revealed that 581,275 homes changed hands in the first 10 months of 2021. This means that this year has already surpassed the previous record for Canadian home sales of 552,423. October’s performance suggests that this market still has room.
Fundamentals remain solid for this sector
I have already mentioned the long period of low interest rates enjoyed by this sector since the financial crisis of 2007-2008. Rate hikes are almost certainly underway in 2022. However, the BoC will undoubtedly proceed with extreme caution. The BoC was gradually tightening before the COVID-19 pandemic hit. Despite this, Canadian real estate was able to post solid numbers with the benchmark rate standing at 1.75%.
Beyond interest rates, the Canadian housing market has benefited from a consistently low supply. The housing supply in Canada is one of the worst in the G-7. The Trudeau-led Liberals have laid out a plan to address this concern, but he doesn’t seem ready to shake things up in any meaningful way. It even fails to add 100,000 new homes per year. Meanwhile, demand for housing in Canada is skyrocketing. This is a recipe for price growth in the future.
Here are the actions related to housing that I would target today
Investors looking to get into this ongoing bull market should look to grab real estate-related stocks. Fair Group (TSX: EQB) is one of the country’s leading alternative lenders. Its shares climbed 52% in 2021 to the close on Nov. 18.
In the third quarter of 2021, Equitable Group saw its assets under management (AUM) increase 13% year-on-year to a record $ 40.2 billion. At the same time, it achieved total loan growth of 14% compared to the third quarter of 2020. This exceeded its loan growth forecast by 8% to 12%. Equitable Group shares have a very favorable price / earnings ratio of 9.8.
Bridgemarq real estate (TSX: BRE) and Atrium mortgage (TSX: AI) are two other housing-related stocks in Canada that I would consider adding today. Bridgemarq provides services to residential real estate brokers and REAL ESTATE AGENTS across Canada. Meanwhile, Atrium provides financing solutions to real estate communities across the country. These stocks are up 16% and 13%, respectively, since the start of the year.
Best of all, both stocks offer attractive income. Bridgemarq last paid a monthly dividend of $ 0.113 per share, which is a monster yield of 7.8%. In addition, Atrium offers a monthly distribution of $ 0.075 per share. This represents a tasty yield of 6.2%.