The Bank of Canada (BoC) is expected to announce yet another interest rate increase this week. Inflation hit a three-decade high in the month of February, which has heightened the urgency to combat its effects. BoC officials have made it clear that they are ready to move “forcefully” to combat inflation. Investors should expect a hike of 50-basis points or more in the days ahead.
Canadian investors should keep their eyes on housing stocks as interest rates are set to creep upward. The fundamentals in the housing market are still strong, but Canadians are also burdened with heavy debt. The twin threats of high inflation and rising interest rates could threaten this market in the near term.
Home Capital (TSX:HCG) is a Toronto-based company that provides residential and non-residential mortgage lending. Shares of this housing stock have dropped 11% in 2022 as of mid-afternoon trading on April 11. The company delivered very strong earnings in 2021, but it could face major challenges along with the broader housing market. That said, this stock currently possesses a very favourable price-to-earnings ratio of 7.3. It last had an RSI of 23, which puts Home Capital in technically oversold territory.
Equitable Group (TSX:EQB) is another top alternative lender. This housing stock has plunged 10% in the year-to-date period. It also possesses an attractive P/E ratio of 7.7 and an RSI of 26, which means Equitable Group is also at oversold levels. Both alternative lenders have posted very strong results, but the uncertainty generated by higher interest rates is scaring investors. It is worth monitoring these stocks and the broader housing market in the months ahead.
