Heading into 2025, many Canadian real estate stocks, including some of the best investments to buy and hold for the long haul, were trading undervalued.
Real estate stocks are often influenced significantly by the level of interest rates since they employ a tonne of debt to leverage their operations.
Therefore, over the past few years, many of the best Canadian real estate stocks have been trading off their highs and offering long-term investors an excellent entry point.
So, after the Bank of Canada just reduced interest rates again yesterday, the seventh consecutive interest rate cut, how will this impact the sector going forward in the near term and throughout the rest of 2025?
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What is the outlook for Canadian real estate stocks in 2025?
As is the case for most stocks across the country right now, the constant flip-flopping and uncertainty regarding tariffs and a potential trade war are making it extremely difficult to predict any outcomes.
This hasn’t just made it difficult for investors to navigate the current environment, but even many businesses are suspending their near-term guidance due to the significant uncertainty about the economic environment both in North America and around the world.
Therefore, while real estate stocks may be less impacted than sectors like aluminum or lumber, which are more directly affected by tariffs and export challenges, they are not immune—especially given the uncertainty surrounding the economy and future interest rate movements.
At the moment, economists are estimating two more interest rate cuts this year. However, we could see even more interest rate cuts if we see a significant recession as a result of the trade war. On the flip side, we could also see interest rates rise if new tariffs continue to be applied, causing inflation to surge.
Therefore, not only will this uncertainty continue to impact the share prices of many of these Canadian real estate stocks, but it’s also impacting capital decisions, which could slow the growth potential of many top Canadian real estate investment trusts (REITs).
So, what are the best Canadian real estate stocks to buy now, or should you avoid the sector altogether?
What are the best Canadian REITs to buy now?
You don’t need to avoid real estate altogether despite this uncertainty. In fact, savvy long-term investors will want to use this environment to buy some of the best Canadian real estate stocks while they trade undervalued.
With that said, though, it’s essential, as always, but particularly in this environment, to tread with caution and understand exactly how any potential investment you’re looking at could be impacted by an escalating trade war.
So, if you’re looking to increase your exposure to Canadian real estate stocks in the current environment, one of the best REITs to buy now is Canadian Apartment Properties REIT (TSX: CAR.UN).
Canadian Apartment Properties (CAPREIT) is one of the best Canadian real estate stocks to buy for a few reasons.
Firstly, residential REITs will likely see some of the lowest impacts from a slowing economy due to their essential nature, their natural resilience and the fact that even if there’s a major slowdown in the Canadian economy, the government is already contemplating significant financial support measures.
Furthermore, CAPREIT is also the largest and most diversified residential REIT in Canada, which is significant to help mitigate risks.
The uncertainty of the tariffs’ impact on the economy and which specific sectors could be targeted means that some regions across the country could experience far higher unemployment than others, making CAPREIT’s geographic diversification essential.
Furthermore, in addition to its reliability and resiliency, CAPREIT is also already trading dirt-cheap at more than 25% off its high. At this price, CAPREIT has a forward price-to-funds-from-operations ratio of just 16.1 times, below its five-year average of 20.2 times.
In addition, with the stock trading just off the bottom of its 52-week range, CAPREIT’s dividend yield has increased to roughly 3.7%, significantly higher than its five-year average forward yield of just 3.02%.
Therefore, if you’re looking to put some cash to work by buying top Canadian REITs while they trade undervalued today, there’s no question that CAPREIT is one of the best and most reliable Canadian real estate stocks to buy now.
