Housing Crash 2021: Get Ready for Record Mortgage Defaults

Invest in Northwest Healthcare Properties REIT to find a safer way to capitalize on the real estate sector, as you prepare for a housing crash with record mortgage defaults.

| More on:
House Key And Keychain On Wooden Table

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The Canadian housing market has been evading what seems to be an inevitable price correction for several years. Average housing prices continue to increase, and despite several measures, homeownership is not becoming an affordable affair.

Despite all the predictions for a housing crash, Canada’s real estate markets are booming. Canadian real estate investors might be teeming with delight at the continuous bullish run in the housing segment, but lenders are preparing for mortgage losses.

The Bank of Canada has recently revealed data that shows lenders taking alarming steps in preparation for a significant housing crash.

Allowance for credit losses in Q3 2020

Allowance for credit losses is the amount that lenders set aside if borrowers are unable to pay their debts. When lenders expect people to default on their loan payments, financial institutions add more money to the cash pile.

Canadian mortgage lenders have increased their allowance for credit losses at an unusually fast pace. Allowances reached $3.9 billion in Q3 2020. The amount was up by a massive 22.01% from Q2 2020, representing a 54% increase from the same period last year. This increase in the allowance for credit losses is the highest rate of growth in over a decade.

Biggest growth loss allowance since the Great Recession

Mortgage loss allowances at Canadian lenders grew faster than the figures did due to the Great Recession. The allowance has been growing consistently since 2018, but the annual growth rate was not too significant. With Q2 and Q3, 2020, the picture changed. Q3 2020’s annual growth has been the largest on record since 2009.

Lenders preparing for increasing mortgage defaults is a worrying sign. Financial institutions anticipate a significant decline but will be well prepared for an inevitable decline. Borrowers continue to capitalize on the low-interest-rate environment to take out more loans to purchase homes that they cannot afford. All these signs are leading towards an inevitable housing market crash that could leave a lasting impact on Canada’s economy.

A safer way to invest in real estate

If you have been eying the real estate sector as an investment, real estate investment trusts (REITs) could be a better way to invest than buying a home.

REITs like Northwest Healthcare Properties REIT (TSX:NWH.UN) could be an excellent way to enter a safer segment in Canada’s real estate sector without all the hassles or risks involved in the housing market.

Northwest is a company that owns healthcare properties throughout Canada and Europe. Its portfolio includes buildings rented by healthcare providers from hospitals to office buildings. Other REITs declined significantly during the pandemic, but Northwest continued to grow due to its defensive nature.

Healthcare is publicly funded in both of its major markets, allowing the company to earn virtually guaranteed cash flows. Northwest’s occupancy rate remains stable at 97.2%, and its revenue has grown 10.8% year over year for the last three quarters.

Foolish takeaway

The Canadian real estate sector continues to have immense potential for investors. However, there is a lot more to it than just the housing segment. Northwest Healthcare Properties REIT shows that there are much safer ways to capitalize on the real estate sector’s returns than buying a home.

You can invest as much as you want without substantial upfront costs or borrowing money from lenders who are already preparing for a housing crash. Northwest could be a far better investment than buying a home in the current market.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »