Real estate stocks: popular investor bets in search of profit

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The US housing market is on fire these days. Home prices jumped the most in 30 years in April, according to data released on Tuesday. This came after a 13.2% rise in March. April also marked the 11th consecutive month that price increases accelerated.

After this stunning growth, there is good reason to believe that the country’s housing market will remain strong for many years to come. Low interest rates and the pandemic-driven shift to suburban living exacerbate housing shortages, driving up prices.

“The forces that pushed house prices to new highs over the past year remain in place and provide no evidence of declines,” said Matthew Speakman, an economist at the Zillow Group.

“The number of homes for sale has remained historically low, especially given the increased demand for housing.”

To capitalize on this vigorous activity in the real estate market, investors are transferring their funds to companies that are best suited to thrive in this environment. For example, this year the index is up 22%, double the growth.

IYR weekly chart.

IYR weekly chart.

Real estate funds also attract investor money. The iShares US Real Estate ETF (NYSE 🙂 brought in $ 1.3 billion in the first week of June.

VNQ weekly chart.

VNQ weekly chart.

The Vanguard Real Estate Index ETF (NYSE 🙂 received $ 1.2 billion in May, according to Bloomberg.

Inflationary concerns

Another reason to bet on real estate stocks is the fear of inflation in a post-pandemic world. As the economy resumes and people’s lives return to normal, there is a possibility that inflationary pressures will intensify.

If that happens, it could undermine the company’s profits and force the Federal Reserve to raise interest rates earlier than expected. In this environment, investors can get higher returns from real estate investment funds (REITs), companies that manage large apartment buildings, commercial real estate or shopping centers.

Consumer prices rose 5% in May from a year earlier, according to the US Department of Labor, the largest spike in inflation in nearly 13 years. Last month, Federal Reserve officials said they expect interest rates to rise by the end of 2023 as inflation rises.

Simon Property Group weekly schedule.

Simon Property Group weekly schedule.

Simon Property Group (NYSE :), America’s largest mall operator, which is up more than 50% this year, is up over 4%.

Brookfield Property Partners' weekly schedule.

Brookfield Property Partners’ weekly schedule.

Likewise, Brookfield Property Partners (NASDAQ :), which operates offices, retail, apartment buildings and industrial assets around the world, offers annual returns of around 7%. At time of writing, benchmark US Treasury yields are just below 1.5%.

Bottom line

In an environment of low rates, when demand for housing remains high, real estate stocks will continue to rise. Investors can buy some of the high quality REITs that offer decent returns and capital gains potential to take advantage of this trend.



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