You probably didn't know this, but the market is booming.
Take a look at some recent headlines for the residential real estate market:
- More signs point to a softer housing market, even as mortgage rates fall
- Lower Mortgage Rates Aren't Boosting U.S. Housing
- U.S. Home Sales Stumble, as Pricey West Coast Markets Suffer Declines
Doesn’t sound like such a great market, does it?
But, despite these headlines, which of course are generated to get clicks, the residential real estate market is enjoying it’s strongest year since 2014 and returns year to date have been pretty staggering considering the lack of mention in the main-stream media about a real estate boom.
Publicly traded residential REITs have benefited from this robust market, returning 23.57% through the end of July based on data provided by NAREIT. Within the broader residential space, single family home and manufactured home REITs have each returned more than 30% through the end of July.
Take a look at some YTD returns for the residential REIT industry:
What’s driving these returns? A few factors:
- Bounce back from 2018. The real estate market tanked in Q4 2018, when the 10- year treasury rate rose to 3.25%, a stock market correction occurred, and plenty of other bad news led to a very disappointing quarter for real estate and most other asset types.
- Interest rates keep falling and falling, having dropped below 1.5% last week. This has driven a lot of capital into real estate looking for yield.
- Strong Demand. Rents keep rising. Demand for housing is not going anywhere. The supply demand equilibrium is a market by market analysis, but overall, there’s still an under supply of housing, and that’s not changing any time soon.
So why isn’t this boom more obvious?
Because the returns we presented above are derived from the public markets and not based on private market transaction or participant feedback. The public markets are usually leading indicators for the private market as public markets provide real-time pricing, real-time transparency, and of course, real-time liquidity.
Those not following as closely will eventually catch on. CNBC, the Wall Street Journal and other media outlets will begin to pick up these trends in the second half of the year. By then, we predict the headlines will look more like this:
- More Signs Point to a Flying Housing Market
- Lower Mortgage Rates Creating a New U.S. Housing Boom
- U.S. Home Sales Rise, as Pricey West Coast Markets Hit New Highs