Barlow’s Research Roundup: Expert conference call summary, top picks in seniors housing REITs

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Real estate

Scotiabank real estate analysts recently held an expert conference call about seniors housing and summarized the results in a Monday report,

“Number of clients on our webcast were up 20 per cent year-over-year, as it was very well attended. Investor interest in Seniors Housing remains one of the highest among all asset classes due to favourable demand-supply fundamentals … We estimate rent growth in the last decade was approximately CPI up 1 per cent, but now with elevated occupancy, it is likely to stay at CPI up 2 per cent (or even up 3 per cent in some cases) … On the valuation front, cap rates for Retirement Homes (RH) have returned to 2022 levels, with CBRE forecasting continued compression and further tightening through 2026. This reflects market recognition that seniors housing is riding a powerful demographic upswing that outweighs the impacts of a higher interest-rate environment. Similarly, investor interest in Long-Term Care (LTC) is at its strongest point in over a decade. Provincial funding programs are proving effective, fostering a much more constructive sentiment compared to last year … Our pecking order is CSH, SIA, and VITL (previously NWH). Reiterate SO ratings on CSH and SIA = double-digit AFFOPU growth forecasts plus defensive attributes. Rent growth should further support cap rate compression. On Vital (VITL), we are reducing our estimates and now forecast low-single-digit FFOPU growth in 2026, but high-single digit in 2027 - we maintain SP rating”

Housing

Macquarie economist Daid Doyle published an in-depth look at the domestic housing market,

“Canada’s economic outlook remains constructive driven by a reduction in trade policy uncertainty, an improvement in fixed business investment, and a likely further decline in unemployment ahead. While housing is likely to continue to struggle in this context, there are growing signs that downside risks from this channel have diminished. Prices have now fallen by around 20 per cent in nominal terms (and nearly 30 per cent in real terms) from their Feb-22 peak. This marks the largest nominal decline on record (data going back to 1975) and nearly the largest real price decline. Mortgage rate resets may remain a drag near-term, but this is now lessening considerably and should become a tailwind in 2027. Existing home sales suggest a further headwind in 1Q26, although further downside is limited given already subdued levels. One exception to this is new construction, which may become more of a headwind in coming years given the possibility of an overbuild relative to population growth … Down payment affordability has improved 30 per cent from its worst point in March-2022 and is back within the range observed in 2015-2019. Monthly payment affordability has improved 25 per cent from its worst point in May 2023, but remains somewhat stretched relative to the 2015-19 period. Our sense is that further progress towards restoring affordability remains ahead through end-27 and potentially beyond this”.

Rates

CIBC economist Benjamin Tal warned central banks against aggressive hiking to curb oil-generated inflation pressure,

“We are still in an oil shock. Historically, oil shocks have preceded recessions: the 1973 OPEC oil embargo led to a severe downturn, the early 1980s double-dip recession was triggered by an oil shock, the 1991 recession followed a similar pattern, and even the 2008 financial crisis came after a substantial rise in oil prices. However, it was not the oil shocks themselves that directly caused these recessions; rather, it was the central banks’ responses — tightening monetary policy to counteract the inflationary effects of supply disruptions — that caused/triggered those economic downturns. Today, central banks’ responses will depend on the severity of the shock, which is a function of four factors: the state of the oil market at the onset of the crisis, the health of the economy, the magnitude of the shock, and its duration. This crisis found the energy market in a relatively balanced position, which is helping to ease some of the impact. Nevertheless, both the U.S. and Canadian economies were already exhibiting signs of weakness prior to the crisis. The more than 50-per-cent increase in oil prices since late February is substantial by any measure. The duration of this shock remains uncertain, but even if the conflict were to end tomorrow — which is unlikely — it would take weeks or months for oil flows to normalize and much longer for the natural gas market to return to equilibrium. By all accounts, we are in the midst of a significant oil shock.

“The Efficiency Paradox” – CIBC Economics

Bluesky post of the day

Diversion

“Yellowstone’s magma source may be closer than thought, reshaping hazard models” - phys.org