The cost of owning a home not only exceeds the cost of renting, Macquarie Securities said, but is near all-time highs.
In a report actually meant to make the case for investing in apartment real estate investment trusts, analyst Michael Smith said the high monthly cost of owning compared to renting comes as a "somewhat" of a surprise given that interest rates are at historic lows.
An index compiled by the Bank of Canada that compares renting to owning currently sits at 110, just shy of the record 113 set in 2007. Anything above 100 means that it is more expensive to own than to rent.
Coupled with the debt-to-income ratio of Canadian households at 147 per cent - a record high - "it is not too hard to imagine the Canadian housing market making a serious correction if interest rates start to rise."
"Moreover," he wrote, "we think that depressed home prices south of the border make high consumer debt levels and low affordability in Canada that much worse."
So what's a homeowner to do? Mr. Smith - who covers real estate investment trusts - said the time of the apartment building is at hand.
"We think an interest-rate driven correction in the Canadian housing market and a resulting slowdown in new housing starts bodes well for the Canadian apartment REIT sector," he said. "Simply put, less supply of competitive/substitute housing is good for apartment landlords."
He said U.S. apartment REITs have "been on fire" because of the devastated housing market, gaining 72 per cent since the beginning of 2010.
In case he's unclear, his note ends on the following note: "We are bullish on the Canadian apartment sector. The sector looks inexpensive compared to U.S. apartment REITs."
He recommends Boardwalk Properties, CAP REIT because they "look particularly inexpensive given their size, liquidity and growth potential."