Housing Market Reheats As Sales Surge 8.6%

Canada’s housing market has regained momentum following the sales surge last month, although it could cool down once interest rates increase in 2022.

| More on:

Despite warnings that borrowing costs will rise sooner than later, Canada’s housing boom isn’t over. Indeed, data from the Canadian Real Estate Association (CREA) showed that home sales surged 8.6% in October 2021 from the previous month. Also, it was the strongest sales increase since the beginning of the pandemic-induced housing frenzy.

CREA Chairman Cliff Stevenson said the real estate market is returning to the activity in spring instead of calming down. With inventory dwindling, prices are climbing and creating an affordability crisis. Local governments are under pressure to address the supply shortage.

CREA’s report also reveals that because of the strong demand, the country’s available inventory is just 1.9 months. Also, the month-on-month increase in the benchmark price of a home was 2.7%. The market continues to surprise, says CREA Senior Economist Shaun Cathcart.

Meanwhile, real estate investors might have to hold off buying properties while the market is percolating again. The best recourse to gain exposure to the real estate sector and earn a rental income is to invest in real estate investment trusts (REITs). You’d be a pseudo-landlord receiving regular cash flows through the dividends.

Top-performing REIT

Nexus (TSX:NXR.UN) is the top choice if stock performance is the basis. This $557.4 million REIT continues to outperform the broader market with its 72.63% year-to-date gain. The real estate stock trades at $12.63 per share and pays a juicy 5.07% dividend.

A $75,000 position can generate $3,802.50 in passive income, or equivalent to $316.88 every month. Nexus’sa quality portfolio consists of industrial (80%). Retail (14%), and office (6%) properties. The REIT is growth-oriented and industrial-focused. Its primary strategy is to acquire industrial assets with strong long-term tenants in attractive markets.

In the first three quarters of 2021, property revenue and net rental income hit $56 million and $36.88 million. These figures represent 22.4% and 24.9% increases compared to the same period in 2020. Nexus has already acquired six industrial properties in Q4 2021 to add to its growing portfolio.

Stabilized portfolio

Many Canadians could be contemplating renting instead of purchasing homes at inflated prices and borrowing at higher mortgage rates. Canadian Apartment Properties (TSX:CAR.UN) or CAPREIT provides quality rental housing in Canada. This $10.11 billion REIT leases residential apartment suites and townhomes and operates manufactured housing community sites.

Apart from Canada, CAPREIT has properties for lease in Ireland and the Netherlands. The competitive advantages of this REIT are its stable occupancy, high level of rent collections, and flexible balance sheet. CAPREIT has collected nearly 100% of rent due year to date and maintained an overall occupancy rate of 97.9%.

In Q3 2021, operating revenues and net operating income (NOI) increased 6.6% and 6.7% versus Q3 2020. Management’s ongoing concern is to diversify the portfolio by geography and demographic sector. Hence, the primary objective is to pursue acquisitions and development opportunities.

CAPREIT is also open to joint venture relationships that could result in the development of multi-unit rental residential properties on its excess lands. The REIT trades at $58.44 (+19.11% year to date) and pays a modest but safe 2.48% if you decide to invest today.

Time for higher interest rates

Robert Kavcic, Senior Economist at the Bank of Montreal, said the price momentum is accelerating again. However, he adds that the Canadian housing market is well overdue for higher interest rates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »