Investment Insights Portfolio Strategies

Gain exposure to real estate through REITs, Structured Notes and other investments.
CIBC Investor’s Edge Feb. 27, 2024 7-minute read


Structured notes

Main benefits and risks of real estate related structured notes

Partnerships with other real estate investors

To understand some of the current factors affecting the real estate market, here’s recent commentary from Ben Tal, Deputy Chief Economist at CIBC.

February 9, 2024

“We have to look at what happened during COVID to understand the current situation. During COVID, prices rose by 46% in 2 years — we’ve never seen anything like that. The jobs lost were mainly low-paying jobs. That’s why rent went down. Homebuyers on the other hand were Zooming, so they kept their jobs and got their salaries while interest rates were in the basement. They got the benefits of the recession — low interest rates — without the cost of unemployment.

There was a sense of urgency to get into the market, which means you borrow activity from the future — now we’re in that future. This is not a freefall in the housing market, this is a reallocation of activity. Sales are down from about 60,000 a month to about 40,000 a month1, a significant pullback, on the edge of a recession basically, and something not seen since 2008. Protecting prices until now was a lack of supply, but that’s changing as more listings come to market. The story is still quite regional however, with heavy corrections in very expensive markets like Vancouver and Toronto, while Alberta is benefiting from its demographic story.”

What are the key factors that will influence this market going forward?

“Interest rates — we believe the Bank of Canada is overshooting by about 50 basis points. But how quickly will rates be falling and by how much? In 2025 and 2026, no fewer than 57% of mortgages in Canada will reset. Our forecast is for rate cuts to start mid-2024, although rates will likely remain higher than before. We forecast rates will be about 3% by end of 2025. 

Another factor is real estate investors. 30% of real estate sales have been to investors, and the majority are in negative cash flow because interest rates are rising faster than rent. Their behaviour will determine market performance over the next 6 months.”

1 Real estate market data as of Fall 2023.

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