Residential propety

Here’s what residential REITs have seen so far by The Motley Fool

© Reuters. Canadian housing market sell-off: Here’s what residential REITs have seen so far

For years, Canadians have wondered if exorbitant home prices would ever stop rising and perhaps come back down. However, despite the continued rise in prices and the many headwinds the economy has been facing, the current market environment could ultimately cause a sell-off in the Canadian housing market.

Since oil prices crashed in the mid-2010s and the Bank of Canada had to lower interest rates to help stimulate the economy, Canadian house prices have continued to rise. Even when the pandemic hit, many thought it would slow the rise in house prices.

What we saw were regional gains, as Canadians moved out of downtowns and sought properties in the suburbs. However, in general, price levels have continued to rise, largely thanks to all the liquidity and stimulus that has been added to the economy.

Today, however, the Canadian housing market faces some of the strongest headwinds to date. Inflation is soaring, putting pressure on the budget of Canadian consumers. Moreover, rapidly rising interest rates naturally make housing less affordable.

Due to this uncertain economic environment and the fact that the whole economy is affected, several pundits and bank analysts have predicted that residential housing prices may decline this year.

So here’s what some of Canada’s largest residential REITs have noticed.

Is the Canadian housing market starting to sell out? So far, based on what management teams have been saying over the past few weeks when major residential REITs reported earnings, there hasn’t been much sign of higher apartment prices yet. .

InterRent REIT, one of the biggest growth stocks in real estate, and a REIT that is constantly looking for new properties to add to its portfolio, mentioned that it continues to look for attractive acquisitions, but so far , there have been no significant changes in private market valuations due to rising interest rates.

Similarly, Killam Apartment REIT, another high-quality residential housing stock, said there still appears to be plenty of buyers in the asset class, particularly for high-quality properties and in larger urban markets. .

It should be noted that approximately three-quarters of InterRent’s portfolio is in Ontario, with the remainder located in the Montreal and Vancouver areas. Killam, however, is much more diverse across the country. Also keep in mind that these REITs are not buying single-family homes, but rather larger apartment buildings and communities.

According to the Canadian Real Estate Association (CREA), the unadjusted average home price was $796,000 in March, up 11.2% year over year. However, while it may appear that the price of the Canadian housing market continues to rise, the March average was down from the record high of $816,720 recorded the previous month.

The financial challenges facing large corporations and REITs are certainly different from those faced by consumers, so there could certainly be a temporary divergence in market rates.

However, observing how these massive REITs approach the current market environment can help determine if it is a longer-term decline, simply a price plateau, or if they will eventually continue to rise. .

Conclusion It is still early days and interest rates have only been rising for a few months. So, in the short term, watching the performance of these REITs and the acquisitions they make can help determine how the economy is performing, what the Canadian housing market might do, and whether they can recover quickly.

Plus, looking at these stocks might also give you the chance to spot a great opportunity to buy one of these high-quality REITs. After all, they offer a ton of benefits over buying a rental property. Not to mention that many high-quality Canadian REITs are now priced ultra-low.

The post Selling in the Canadian Housing Market: Here’s What Residential REITs Have Seen So Far appeared first on The Motley Fool Canada.

Foolish contributor Daniel Da Costa holds positions in INTERRENT REAL ESTATE INVESTMENT TRUST. The Motley Fool holds positions and recommends Killam Apartment REIT.

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