Scotiabank analyst guides clients through rough patch for apartment REITs

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

Real Estate

Scotiabank real estate analyst Mario Saric addressed the underperformance of apartment REITs,

“Yesterday’s Rentals.ca September data reversed the unexpected 0.7-per-cent average August gain, with 2BR asking rents falling 0.7 per cent month-over-month (vs. up 0.7 per cent August), driving the 3-month avg. to flat; avg. 1BR was down 0.6 per cent vs. down 0.4 per cent August. National Apartment Rent fell 0.7 per cent month-over-month vs. up 0.6 per cent August, with 3-month avg. flat. Last September, rents were flat m/m . We estimate market asking rent erosion range of 0.4 per cent (MI) to 0.7 per cent (BEI/CAR). On 2BR data, Halifax and Montreal (up 0.1 per cent month-over-month) outperformed, with Vancouver (down 1.8 per cent) and Edmonton (down 1.2 per cent) the biggest outliers; Toronto was down 0.2 per cent. On 1BR data, Montreal and Halifax still outperformed, with Edmonton looking better (Calgary and Ottawa worse). Our ‘Mixed’ view reflects the importance of a positive market asking rent growth to investor sentiment, while acknowledging the 7-per-cent under-performance of CAD Apartment REITs post IIP privatization news. Unit price pressure = 20-per-cent NTM [next-12-month] RORs [next 12 months rate of return] for some quality Apartment REITs, but we see it back-end weighted with limited imminent catalysts (i.e., supply > demand during Fall/Winter, no major immigration policy changes expected, condo markets remain tough). Our SO-rated names = KMP and NRR”

Housing

BMO senior economist Robert Kavcic wrote that domestic housing markets are tracking the implosion of previous bubbles,

“While many are searching for bubbles in the equity market, one continues to undo itself as we speak—Canadian real estate. Home prices in Canada, and Ontario more specifically, are still slumping after peaking in early 2022. Interestingly, the current decline is tracking both the 1990s episode in Ontario (this one has been somewhat steeper) and national U.S. price trends after 2007. It’s a widely-held consensus that those two episodes were ‘bubbles’. We’ll reiterate, as we have from the start, that this cycle will be measured in years, not months or quarters, because so many positive factors crested at the same moment: Peak Millennial demand; peak immigration; pandemic-era movement; excess liquidity; ultra-low interest rates; maxed-out valuations; and speculative market psychology. It’s next to impossible to repeat those conditions, and thus the bear market in housing staggers on until affordability and investment dynamics reset themselves”

“Canadian housing market looks like previous bubble implosions (BMO)” - Bluesky

Metals

Citi strategists are getting really bullish on copper,

“We see a 2026 growth pickup catalysing $12 k/t copper by 2Q’26 but multiple catalysts could see $12 k/t much sooner 1. A new Fed chair may be announced in the next one to two weeks, with the possibility they are more dovish than expected (i.e. Kevin Hassett), and/or provide dovish guidance at subsequent press events/speeches… 2. A China-U.S. deal may be flagged/detailed around APEC meeting on Oct 31/early Nov; President Trump said he plans to meet President Xi around the time of the event (4 Oct, Financial Review) and is motivated to bring capital investment back to the U.S. from China ahead of the mid-terms. 3. The U.S. Supreme Court may nullify reciprocal tariffs, which could result in temporary market exuberance before Section 338 tariffs are imposed. 4. Post the Supreme court decision, President Trump could push congress to approve $2k per taxpayer earning under $200k at a cost of $200-billion, equivalent to 50 per cent of annualized August tariff revenues – this would be bullish for risk assets 5. The Supreme Court rules for Lisa Cook’s possible dismissal in January 2026, fuelling concerns around Fed independence (lower U.S. real rates). 6. Significant incremental cuts to copper mine supply guidance for 2026 could plausibly be announced through 4Q’25, e.g. a more pessimistic full assessment”

Bluesky post of the day

Diversion

“Scientists “Supercharge” the Immune System To Stop Cancer From Coming Back” - SciTechDaily