Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO senior economist Robert Kavcic previewed a report on domestic housing prices (the full report will be out Friday evening through the BMO Economics website),
“This week’s Focus feature will serve up a Canadian housing market outlook for 2024. As a quick preview, we’re seeing signs that most of the excessive ‘froth’ has been cleaned out of the market, which could help put a floor under prices as the year plays out. One example is that inflation-adjusted home prices have now largely adjusted back to their long-term growth trend. Does that mean we have an all-clear from a valuation perspective? Not necessarily. Affordability is still strained even though prices have fallen, and our interest rate outlook will go some (but not all) of the way to normalizing that. Meantime, valuations are still somewhat stretched from the perspective of an investor, where cap rates haven’t risen enough yet to account for higher neutral interest rates…but we’re getting closer.”
“BMO: “Inflation-adjusted home prices have now largely adjusted back to their long-term growth trend”” – (excerpt, chart) X
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The real estate analytics team at Scotiabank global equity research recently hosted a series of meetings with apartment REIT management,
“We held the Panel lunch, 1x1s, and Property Tour this week. Panelists = BEI [Boardwalk REIT], CAR [Canadian Apartment Properties REIT], IIP [Interrent REIT], KMP [Killam Apartment REIT] and MI [Minto Apartment REIT]. Client lunch participation was +56% y/y … We felt the panel view was very bullish, moreso than last year (CAR mentioned never being this bullish), with one key difference = substantially lower regulatory concerns … Our bias remains higher Apartment allocations at least heading into the fall. Our top Residential Picks = CAR, TCN, and IIP… We expect Apartment REIT outperformance in 2024, albeit decelerated; attractive defence in a hard landing is 50% of the positive thesis. CAD Apartment REITs are -2% YTD vs. -1% for CAD REIT sector, following avg. 17% outperformance in 2023. CAD Apartment REITs outperformed CAD REITs and U.S. Peers in 3 of the past 4 years … Tight market intact, but we think big unit price upside needs growing market rents’
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Stu Morrow, chief investment strategist for Morgan Stanley Wealth management Canada, provided a forecast for the domestic economy,
“In 2024, we expect the most frequently asked question amongst Canadian investors will be, ‘are we there yet?’ with respect to interest rate cuts by the Bank of Canada (BoC)… Our base-case scenario for the Canadian economy is a soft-landing in 2024, but we see risks skewed to downside, as tighter monetary policy weighs on growth. Employment, housing, and a potential global recession are the biggest threats to our outlook for Canadian growth, inflation, and interest rates … We expect inflation will ebb and flow in 2024, but ultimately, we expect that the BoC will cut interest rates, marking the beginning of the next Canadian economic and market cycle in 2025. We expect that bond, stock and commodity volatility will remain high in 2024, as investors digest any surprises in the growth and inflation data, asking again, “are we there yet?” As such, investors need to remain well diversified across asset classes and regions. From a tactical perspective we continue to recommend investors maintain an overweight to fixed income and ultrashort fixed income, while being underweight equities”
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Diversion: “UC Irvine Students Hospitalized After Hackers Sent Disgusting Images to Their Discord Server” – Gizmodo