I’m known to be an optimist, a guy that will always tell you that today is the best day to invest your money… since you missed yesterday! While I’m confident that I will have another great year in the stock market, I’m also not a lunatic with pink glasses either. Unfortunately, there are some dark clouds rising at the moment which concern me. Here are three things that scare me the most in 2018.
1 Canadian Debt Level & Housing Market
I’ve been concerned about the Canadian housing market since 2012 and I’m sure I sound like a broken record. However, this situation doesn’t make sense to me:
Source: Ycharts
Do you remember what happened when Americans started using their house like an ATM machine? Yeah… 2008 happened. As you can see from the chart above it took them until 2014 before reaching 2008 levels. What about us? We flew like Canadian goose flying wild toward their Florida party during winter time. Our market just ignored the warnings. As Canada was proclaimed the country with the “world’s best banking systemâ€, many foreign investors shifted their money toward our Real Estate market. It’s nice to get some positive attention, but with a household debt level hovering around 170%, new mortgage rules requiring a “stress test†for all new borrowers, I don’t see how we will go through this situation without a housing correction.
What I plan to do about it
I plan on keeping my house. I’m comfortable here and I don’t plan to move for the next 5 years. I secretly hope that my children grant me the permission to sell everything and travel the world but I know their friends matter to them and I know I will be “stuck†in this winter country for a while.
As far as my investments, I have a reasonable position in the Canadian banking industry with Royal Bank (RY.TO)(RY) and National Bank (NA.TO). Both banks show strong positions in the capital and wealth management markets while leaving the classic mortgage business to TD (TD) and CIBC (CM). In the event of a market crash, National Bank should not be affected too much as the bulk of its mortgage portfolio is in Quebec, one of the provinces that has not been affected by the housing bubble.
