I have been thinking of how to profit from a correction of residential home prices in Canada, especially in Vancouver and Toronto. It does not seem as straightforward as initially thought. A number properties have seen their asking prices slashed by sometimes over 10% in the most recent weeks but that's just sellers trying to cash in on the exorbitant housing price bubble. It's just unrealized profits that are adjusted downwards and does not yet affect the economy. Builders seem to be insulated from a potential 20% or higher correction because they are building at record pace and municipalities and provincial governments continue to encourage home construction to ease the supply crunch. I also don't see much pressure for mortgage lenders other than a soft landing due to rising interest rates. I can't spot much of a reason for a hard landing in lending as subprime mortgages don't really exist USA style. Lending requirements are a lot more stringent here. Also most home loans are securitized and sold off rather than kept on the books. This gets me wondering what other companies/stocks might be in for a downward correction should home prices adjust to the downside at some point. We can talk about fair value all day and I am the first one to believe fair value lies at least 50% below current valuation but that does not mean companies are equally affected. I checked home builders and many in Canada are private non listed companies. The few large ones that are listed have fairly low valuations in the single digit billion dollar range and drop off very quickly. Then stock options on the Montreal exchange are rather illiquid and I am not sure it makes sense to even consider puts for a controlled and longer lasting move to the downside, I would pay away too much in eroding time value and don't see large vol spikes in this regard. Shorting Reit ETFs come with their own complications such as large borrow rates or the ETFs otherwise limiting inflow or the risk of winding down. What do you guys think might be suitable instruments or companies that are very sensitive to a Canadian house price correction especially in the local Vancouver and Toronto markets? If city governments were traded they would probably be my prime short candidates, especially ultra liberal Vancouver that will feel hard pressed to finance their blown up spending programs once they have to adjust downward property valuations. Actually a lot of municipalities are against tightening laws and regulations to limit housing speculation such as proposals in Ontario. Municipalities fear they can't sustain their spending when they adjust down property valuations. But how can one take positions on such view?
%% IF they do [deliquent] tax sales, some good money can be made there. At the time i did some gasoline was much cheaper. In my [USa]state the delinquent taxpayer could redeem the property for your cost/other costs+ late fees + 10%......................................... I CAN'T think of any high tax big cities that i would want to live in \ but like the real estate appraiser said ''asking price tells you what its not worth'' LOL
%% AT that time /it was plenty of shoe leather walking property, buying some for resale, but they redeemed the property. So got 10% And from your post avoid Vancouver. A real estate investor bought some property, next to mine , outside the city limits; he told me someone called from a hi tax city[more crime also] wanting to trade property; no thanks on that trade also, he said. He bought rural property + divided it up in 4+ 5 acre properties + financed some of his sales .......... .
There will be zero to miniscule nominal decline in housing prices in Canada. If housing corrects, depression follows.
%% I see ways to make money with EWC etf, but thats for the whole nation of Canada. Good volume. OF the 4 things i mentioned earlier /2 have worked in overpriced markets. IF you choose to limit yourself to only profit by computer clicks\that's your choice not mine.
EWC is not a property focused etf. There are Reit etfs but as said there are risks and limitations attached. I wonder whether NHA issued bonds and other mortgage backed bonds are shortable in listed markets or only in the otc market.