2 Housing Stocks That May Be “Frothy” Right Now

Back in the middle of January, Bank of Canada Governor Stephen Poloz weighed in on Canada’s housing market. He warned of "froth" in the housing market as it has shown some solid strength since correcting in 2017 and 2018. Should investors also be worried about high valuations in alternative lender stocks that are intimately connected to housing?

Equitable Group (TSX:EQB) stock has surged 65% year-over-year as of close on February 7. The company is expected to release its fourth-quarter and full-year results for 2019 after markets close on February 24. Equitable Group has put together consecutive strong quarters even in the face of challenges in the broader market.

In the year-to-date period in 2019 the company has reported net income of $150 million compared to $125 million in the prior year. The stock is hovering around a 52-week high, but it still possesses a favourable price-to-earnings ratio of 9.8 and a price-to-book value of 1.3. Equitable Group has an adequate balance sheet and in an improving market it looks like the stock still has room to run.

Home Capital Group (TSX:HCG) is also set to release its Q4 and full-year results on February 21. Its stock has soared 116% year over year. Home Capital possesses a higher P/E of 15 and a P/B value of 1. This is still solid value relative to industry peers and it has worked to improve its balance sheet into 2020.

Housing is charging back, but it has just started to rebound after a rough 2017 and 2018. Investors should still feel comfortable in placing their faith in Canada’s housing sector.