Housing Crash: Will 2020 Finally Be the Year the Bubble Bursts?

A strong rebound in unemployment and job security could prevent the housing bubble from bursting in 2020. For investors wishing to boost household income, the National Bank of Canada is a dependable dividend payer.

| More on:

Is the housing bubble in Canada about to burst soon in 2020? The mandatory lockdowns due to COVID-19 slowed the housing market, which is typically busy during spring. Over the last decade, housing is among the country’s hottest sectors. Low interest rates and low unemployment were pushing property prices higher.

However, the economic situation has been changing since the onset of the pandemic. Interest rates remain incredibly low, but millions of Canadians are without work. The unemployment rate is in the double digits and averaging 11.77% from May to August 2020. Once government benefits end, home prices could fall.

Active market in 2020

According to the RE/MAX Fall Market Outlook Report, it’s unlikely for housing prices to fall. RE/MAX is the leading real estate organization in Canada. Its brokers and agents across the country expect the housing market to remain active, if not vibrant, for the rest of 2020.

Activities dropped by up to 70% year over year in March and April. However, housing markets in various regions bounced back in May and June, notwithstanding the COVID-19’s impact. Realtors see a spring-like market activity in fall.

Regarding housing prices, brokers and agents estimate a 4.6% increase in the third and fourth quarters of 2020. Likewise, there’s more interest in suburban and rural communities due to the changing dynamics in work and life.

Market on thin ice                                                    

The Canada Mortgage and Housing Corporation (CMHC) and the Macro Research Board (MRB) paint a bleak picture. Both believe a housing bust is inevitable because of an unstable market bubble and household credit binge. For MRB partners, the surging unemployment rate is a massive headwind.

CHMC sees Canadians holding off on home purchases due to job loss and uncertainties. The federal housing agency warns the pandemic and resulting lockdown of the economy could bring down the average home prices by between 9% and 18%. Likewise, it expects the housing sector to return to pre-coronavirus levels by year-end 2022.

Similar assessment

National Bank of Canada (TSX:NA) has the same assessment as the CMHC and MRB. The sixth-largest bank in Canada forecasts the sharpest recession drop (average 9.8% from 2020-21) for real estate prices ever. The bank’s estimate, however, is on the low end of CHMC’s forecast.

This $22.06 billion bank is holding up well in the pandemic. Before loan-loss provision and taxes, income went up in most of its business segments in the third quarter of the fiscal year 2020 versus the same period in 2019. Overall, the slide in net income was only 0.99%.

In terms of stock performance, National Bank is outperforming its bigger counterparts Toronto-Dominion Bank, Bank of Nova Scotia, and Bank of Montreal. If you’re looking for a long-term income stream, this bank stock is as reliable as the Big Five banks. The total return over the last 20 years is 1,138.96%, while the current dividend yield is 4.29%.

Avoiding the crash

The low interest rate environment and federal stimulus packages are very helpful to Canadians. However, the rebound in employment and job security must be strong, if not quick, to mitigate the risk of a housing crash in 2020 and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »