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

RBC Capital Market REITs analyst Pammi Bir notes that investors need to distinguish between subsectors within the group – the news is not all bad,

“Once again, industrial rents hit new highs, with the national average rising to $13.71 per square foot (up 31 per cent year-over-year). While new supply exceeded absorption for the first time in almost two years, national availability remains exceptionally tight at 1.6 per cent (up 10 basis points quarter-over-quarter). As noted in our 2023 outlook report, we expect availability to rise further, though fundamentals should remain strong, supported by solid, yet moderating rent growth. With both Dream Industrial (DIR.UN) and Granite (GRT.UN) trading at high-5-per-cent implied cap rates, we see valuations as attractive. In office, national vacancy rose to 17.1 per cent (up 70 basis pojnts quarter-over-quarter) as new supply, rightsizing, and tempered growth from tech tenants drove weaker absorption. The uptick, however, is likely not a surprise to most. As outlined in our outlook report, we expect vacancy to rise in the year ahead amid slowing economic activity and a sizeable pipeline of new supply deliveries. Still, considering its track record of operational outperformance and discounted valuation, Allied Properties (AP.UN) remains our preferred office pick.”


Morgan Stanley oil and gas analyst Martijn Rats sees headwinds for the commodity price in the short term but is bullish for the second half of this year,

“The second half of 2022 saw GDP growth slow down, forward GDP expectations revised downwards, PMIs roll over, monetary conditions tighten and activity levels in China deteriorate. Oil demand weakened in response, allowing the market to return to balance, from its prior deficit, and oil prices to fall … In our late November note, we discussed a number of key uncertainties for oil markets for full-year 2023. This included China’s re-opening, further recovery in aviation, downside risks to Russian supply, the slowdown in US shale and the end to SPR releases. From the perspective of oil prices, newsflow on these factors has mostly been positive since then. Even with modest demand growth assumptions, we see the oil market coming into balance in 2Q and turning tight in 3Q and 4Q, supporting higher prices later this year.”

Mr. Rats sees WTI crude at US$107.50 per barrel by the end of 2023.

“MS bullish on oil for second half of 2023″ – (research excerpt) Twitter


Scotiabank strategist Jean-Michel Gauthier sees ‘trouble down the line’ for Toronto home owners,

Canadian Housing Entering Bear Market Territory … Housing sales data from the Toronto Real Estate board released last week point to a likely unprecedented collapse in housing prices in 2022. … The December median house price in Toronto is down 19 per cent from its all-time high hit in February. This is the fastest and largest house price retreat from previous highs since at least 1996 based on monthly data. Using yearly data, the 1989 to 1996 Toronto housing bear market did see average selling prices tumble 27 per cent, but over a 7-year period! Granted, sales volumes have been unusually low since April while new listings kept a steady pace, which could indicate a shift in selling categories (i.e. December sales are not strictly comparable with those from February). Still, December data from the Quebec Professional Association of Real Estate Brokers also point to a 13-per-cent slide from peak median housing prices hit in May. Moreover, the November MLS Home Price index (which does adjust for change in selling composition) is 16 per cent lower than its March peak. Overall, a homeowner in Toronto that bought in February technically has no equity left in his home assuming a 20-per-cent cash down. This likely implies potential trouble down the line. Recent home buyers may not be able to refinance without putting in more equity if home prices stay depressed for the next five years. Moreover, it prohibits any subsequent transactions since the buyer would have to give back nearly all of the house’s value to the bank to pay back the mortgage (especially if taken at a variable rate, as was done for 55 per cent of loan volume in February 2022 vs. less than 10 per cent in 2019 and 25 per cent today). Thus, absent a swift price recovery, Canada’s housing market could suffer from a prolonged freeze even if there are few defaults/foreclosures. On a more positive side, peakish mortgage rates should help put a floor on housing prices. "

“Scotiabank: “Canadian Housing Entering Bear Market Territory” – (research excerpt) Twitter


Diversion: “”We’re going to do Half-Dry January,” @slingerland20 , who wrote a book arguing that alcohol helped humans create the world, tells @mimbsy " – The Atlantic

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