The hope of a comeback in the Canadian real estate market could be building steam, but much like a tidal wave, the waterline is pulling back before it comes back in. Canadian home prices dropped once more in recent measures, but that is also prompting more potential homebuyers to engage with the market. But that proved just a little helpful for the iShares S&P / TSX Capped REIT Index fund (TSE:XRE), which notched up fractionally in Thursday morning’s trading.
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While May’s housing market numbers showed some signs of new life, the word about June was much less optimistic. Oxford Economics director of Canada economics Tony Stillo, and senior economist Michael Davenport, both noted that “…we expect the housing slump will extend through the end of 2025.” There was one case in which that does not happen, but it required an “immediate deal” to remove most, if not all, tariffs between the United States and Canada.
May’s housing market prompted optimism thanks to an upturn in sales, but even then, national sales were down about 16% against the five-year average. Further, the benchmark housing price was also lower, down for the sixth month running, ultimately down 3.2% against the same time in 2024.
Pent-Up Demand
One point, however, suggests that a change could be in the offing. A study with Royal LePage (TSE:BRE) noted that 28% of recent renters actually considered buying before signing their current lease. This by itself only means so much. After all, they did ultimately sign their lease, which is the direct opposite of buying a house. But it speaks to a certain amount of “pent-up demand” that could be unleashed on the broader market once prices reach the appropriate level.
In fact, the study also noted that 40% were actively waiting for prices to decline further. Another 29% were waiting for interest rates to drop further. And 28% on top of that were renting only so they could save money for a down payment. Given how many Canadians were willing to take on home debt right now, that assessment makes sense.
Is the iShares S&P / TSX Capped REIT Index ETF a Good Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on TSE:XRE shares based on 12 Buys and five Holds assigned in the past three months, as indicated by the graphic below. After a 6.45% rally in its share price over the past year, the average TSE:XRE price target of C$17.44 per share implies 10.53% upside potential.
