National Bank rate chief and public sector strategist Warren Lovely has just published a timely research report titled Canadian housing leakage springs Wednesday. The report leaves much for readers to interpret, with only a brief description followed by more than 20 outlines.
After studying the graphs, my main conclusion is that home prices are set to fall by about 12 percent on average over the next 20 months or so.
The National Bank projects that insured variable and fixed mortgage rates will rise above their 2019 highs near 3.75 percent and 4.25 percent, respectively, with both reaching 4.5 per cent later this year. The increase in the mortgage rate to date, caused in part by the Bank of Canada’s monetary tightening faster than in previous cycles, has pulled back nearly 5 percent from the highest levels of home resale.
The most important chart in the report is Chart 18: How Much Was Weak (and For How Long) Last? (I posted a copy on social media here). It shows that during the Bank of Canada’s most recent tightening cycle in late 2017 and early 2018, the median price of a resale home fell 10 percent until bottoming out at 21-month rates that were beginning to rise.
There are reasons to expect the correction to be bigger this time around. The current cycle has been more foamy, with home prices rising 10.4 percent compared to 3.8 percent and 3.0 percent in the previous two cycles.
Mr. Lovely also confirmed that variable mortgages have risen to record levels as a percentage of total assets, at around 55 per cent. This increases the likelihood of forced sale and downward pressure on home prices as mortgage payments erode household finances.
There are also factors that should mitigate the damage in housing markets. The country’s enviable increase in population growth between 2016 and 2021 will continue to support the demand for housing, as will the steady rise in immigration.
The local housing market has always been a catalyst for strong sentiment. There have been many critics who have warned of a real estate crash and many of them have argued that the housing market will rise within any reasonable period of time in the future – if not forever. Despite this drama, the outlook for housing markets may be a little dull: a painful but shallow correction followed by price stability and more moderate gains.
As for the stock markets, there may be a silver lining as the froth and madness leave the real estate markets. Equities may pay off because housing appears to be less bulletproof as an investment option.
— Scott Barlow, Market Strategist, Globe and Mail
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stock to think about
Kalyan Group Limited. (CGY-T) Ottawa-based Calian is a company that operates four business segments: health, advanced technologies, information technology and e-solutions, and learning. The stock has performed strongly, up 14 percent year-to-date, up to Friday’s close. On May 19, its share price closed at a record $71.58. Calian has a unanimous buy recommendation from seven analysts, but as Jennifer Doughty tells us, the stock price is vulnerable to a pullback in the near term.
Beyond Meat Inc (BYND-Q) Three years ago this month, the vegetarian meat company went public on the Nasdaq amid great fanfare and speculation. Burgers, sausages and other products designed to look like meat will revolutionize the way people eat, disrupt the food industry and reduce the environmental impacts associated with heavy diets. Fast forward today, and you’ll see that the stock price is down 90 percent from its all-time high. What went wrong – and is there now a buying opportunity? Philip McKellar of The Contra Guys shares his thoughts.
Based on earnings, stocks could fall further
For students of stock market disasters, this is where things get interesting. So far, the crash has been largely predictable – a simple but painful guide to what happens when inflated stock prices hit the hype of rising interest rates. But this simple story is getting more and more complicated now. What happens next will largely depend on whether the companies can achieve the profits that investors expect over the coming months. If they could, the market carnage should mostly end. If they can’t? Prepare for more bloodshed in the future. Ian McGugan explains it.
SEE ALSO: With bear market looming, collapsed Wall Street seeks ‘Fed status’ out of reach
David Rosenberg talks about how to know when it’s time to start buying stocks again
Economist David Rosenberg believes that the stock market is still far from the bottom. He says the market is following a familiar bear market pattern, and this holds clues as to when it’s time to start buying.
TSX’s bullish outlook eased as analysts worried about growth
A Reuters poll found that Canada’s main stock index is expected to advance less than previously thought this year as economic growth slows and central banks raise interest rates. Some even expect the S&P/TSX composite’s outperformance against most major global markets to end soon, and it is struggling to return to record levels anytime soon.
SEE ALSO: After a tough period, US stocks will end the year higher than current levels: Poll
What a $225 Million Canadian Fund Manager Was Buying and Selling as Stocks Flirt with a Bear Market
Shane Obata is seeing a lot of buying opportunity in the markets these days as higher quality stocks are being dragged down by riskier names as part of the broader sell-off. Mr. Obata, who manages approximately $225 million in assets as part of the company’s $2.3 billion total under management, says his team is essentially a “long store only,” meaning he typically uses a “buy and hold” strategy. It has been actively spreading cash and has been invested almost entirely in the wake of the current volatility in the market. The Globe recently spoke to Mr. Obata about what he was buying and selling.
Have you been hit by bonds and trampled by stocks? Calm your mind with these long-term return predictions
Guidance for financial planners on long-term investment returns, inflation, and more is issued annually by the FP Canada Standards Board and the Institute of Financial Planning. This year’s edition is a must-read due to anomalies in recent returns. As Rob Carrick wrote, use these guidelines to determine your future expectations for returns over the next ten years.
Stock and Bond Divergence Provides Hope in Collapsing 60/40 Portfolio
Understanding the stock market through the laws of nature
Elon Musk criticizes ESG. Maybe you should take a closer look at Tesla
When S&P Dow Jones Indices removed Tesla Inc. From an influential index of companies based on ESG principles, some investors may have been baffled last week. The source of their confusion: If a company dedicated to making electric cars and reducing fossil fuel emissions can’t get into the S&P 500 ESG index — but an oil producer like Exxon Mobil Corp. — what’s the point of embracing sustainability? But David Berman has an idea: Maybe ESG’s investing principles do exactly what they should be doing.
Is The Bitcoin Winter Ending Near?
Crypto winter has entered its ninth week and bitcoin cannot shake the chill. From technical indicators to trading volume, market indicators are flashing red or amber for the largest cryptocurrency, which has lost a third of its value in just two months. So what now? Reuters reports indications that the crypto king is planning a comeback.
Stock ETFs for investors worried about a stock burn
As risky as stocks have looked this year, most investors will still need exposure to them in order to achieve their financial goals. Rob Carrick has a suggestion to stay in equities while mitigating the downside risk a bit: consider a low-volatility ETF that tracks the Canadian, US, or international markets.
Other (for subscribers)
As the exceptionalism of the US economy fades, so does the dollar
Dividend payments hit a record high in the first quarter, but expectations were tough
Analysts promotions and downgrades on Wednesday
Analysts promotions and downgrades on Tuesday
Wednesday Insider Report: CFO Invests Over $540,000 in This Stock with Over 60% Expected Return
Tuesday Insider Report: CEO and Chairman buy dividend stock after falling into oversold territory
How to play the bull case for agricultural stocks
How did retail stocks go from ‘stagnation rules of the game’ to a lost market
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Ask Globe Investor
A questionHow do I invest in the John Heinzel Dividend Model Portfolio?
Answer: You can not. It’s a typical wallet that uses virtual dollars, not real money. If you are looking for a dividend fund to invest in, there are several ETFs to choose from. You will need to open a discount brokerage account to access it.
Some noteworthy examples include the BMO Canadian Dividend ETF (ZDV), iShares Canadian Select Dividend Index ETF (XDV), and Invesco Canadian Dividend Index ETF (PDC), among many others. There are also plenty of ETFs covering the US market, including the iShares Core Dividend Growth ETF (DGRO), which I have in my portfolio of models.
– John Heinzel
What’s new in the coming days
Dr. George Athanasakos will tell us why his value investing students think Malibu Boats is a stock with a huge upside.
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Compiled by staff at The Globe Investor