Lagging Real Estate Stocks Have Dropped Too Far, Analysts Say - BNN Bloomberg | Canada News Media
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Lagging Real Estate Stocks Have Dropped Too Far, Analysts Say – BNN Bloomberg

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(Bloomberg) — Wall Street analysts see a double-digit upside potential for the S&P 500’s biggest losers this year: real estate stocks. 

All that may be needed to turn the group’s fortunes around, say investors and analysts, is firmer conviction that long-term borrowing costs have plateaued and will head lower. That notion got a boost on Friday after a weaker-than-forecast report on the US labor market caused Treasury yields to tumble.

Analysts covering the industry’s stocks expect a 16% rally in the group in the next 12 months, based on Thursday’s closing levels, according to data compiled by Bloomberg. And for the sector’s most troubled names — real estate investment trusts — analysts see 15% upside potential during that time. 

Real estate stocks are coming off of their worst monthly pullback in nearly two years, a slump that came as Treasury yields rose to the year’s highest levels. The group breached its most oversold signal in nearly six months in mid-April, before paring some of the declines.

Federal Reserve Chair Jerome Powell on Wednesday essentially ruled out an interest-rate cut in the near term, a move that would’ve helped a rate-sensitive sector that depends on debt for business.   

To Janus Henderson Investors’ Gregory Kuhl, the latest interest-rate meeting may have been an upside catalyst for the group. Policymakers left interest rates unchanged on Wednesday and indicated a willingness to keep borrowing costs elevated for longer rather than raising them again, easing concerns of investors in the beaten-down real estate sector.  

“From where listed REITs are currently priced, I don’t believe the market needs to expect rate cuts for REITs to deliver solid performance. If the market reaches a solid consensus that rate hikes are off the table, that may be enough to get REITs going,” Kuhl, a portfolio manager at Janus Henderson, said by email. “It did seem like Powell took rate hikes off the table, which I think is a positive for REITs.”

Historically, REITs haven’t fared well when Treasury yields rise, generally underperforming the S&P after a 100-basis point jump in the 10-year Treasury rate over roughly a median of 170 days. But after yields stabilized, REITs generally rebounded as much as 9% in the next 90 to 180 days, according RBC Capital Markets analyst Michael Carroll.

“The jury’s still out on what happens in this type of environment,” he noted. “But if rates stabilize, REITs could do well and you can start to value them on fundamentals again.” Carroll sees opportunity in industrial, senior housing, single family rentals and data centers REITs. 

Still, there are plenty of challenges ahead, including depressed levels of merger-and-acquisition activity.

For now, real estate stocks are being held hostage by the Fed, but for those with a long horizon, the sector’s valuation discount could offer an attractive buying opportunity, said Kuhl. The S&P 500 Real Estate Index is trading at 33 times projected 12-month earnings, an 18% discount to its 10-year average. 

If rates go down, multiple expansion coupled with dividend yield growth could be a tailwind for the sector, Kuhl said, similar to the fourth quarter of last year. He expects an 8 to 9% total return for REITs this year, in line with historical averages. He sees forward strength in self-storage, data centers and cell tower landlords. 

©2024 Bloomberg L.P.

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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