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The US real estate industry has come under pressure amid the foreclosure peak. However, things have changed for the better and the loss trend could accelerate for the reasons mentioned below.
Rising inflation
The current economic context is promising for a return to inflation. The consumer price index increased in April compared to the previous year stronger since September 2008. The consumer price index rose 4.2% from the previous year, beating the estimate of a 3.6% increase. Sequential inflation was 0.8%, versus 0.2% expected. In an environment of rising inflation, real estate values ​​are a good bet. Both the resale value of the property and the rental income increase with price inflation.
Rising house prices are a boon for tenants
The US residential construction industry is on fire. Thanks to extremely low mortgage rates, home sales are dynamic. But rising demand for home purchases along with a shortage of labor and land have pushed up house prices. It’s a great scenario for tenants.
With a few analysts, we also believe that rapidly rising home prices are likely to drive potential buyers away from the property and steer them into the rental market. “Homeownership is still dead in this country because the only people buying homes right now are people with equity, good credit and a job,” the investor told Yahoo Finance. in Grant Cardone multi-family housing. quoted on an article.
Still unstable labor market = high demand for rents from low-income groups
The labor market is still far from stable. In April, non-farm employment was down 8.2 million, or 5.4%, from its pre-pandemic level in February 2020. Coronavirus fears are still relevant. This means that the demand for real estate for rental is likely to remain strong among middle- and low-income consumers.
Real estate is lucrative in a low yield environment
If that is not enough, a general low rate environment is ideal for real estate stocks and ETFs as they are high yielding in nature. The benchmark yield on 10-year US Treasuries was 1.61% on May 24. In such a low yield environment, the dividends offered by real estate ETFs are quite solid.
Some of the decent real estate ETF games right now are SPDR Sector Select Real Estate ETF XLRE (yield 3.15% per year), PPTY American Diversified Real Estate ETF PPTY (yield of 2.91% per year) and VanEck Vectors Mortgage REIT Income ETF DEATH (yield 6.84% per year).
Against this background, below we highlight a few real ETFs that have remained stable in recent weeks.
Focus on ETFs
Virtus Real Asset Income ETF (TRUE) – Up 3.7% in the last four weeks, Returns 4.18% per year
IShares Mortgage Real Estate ETF (REM) – Up 1.6% in the last four weeks, Returns 6.07% per year
Invesco S&P 500 Equal Weight Real Estate ETF (EWRE) – Up 1.5% in the last four weeks, Returns 3.31% per year
PPTY – American Diversified Real Estate ETF (PPTY) – Up 1.5% in the last four weeks, returns 2.91% per annum
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VANECK-MTG REIT (MORT): ETF Research Reports
SPDR-RE SELS (XLRE): ETF research reports
INVS-SP5 EW RE (EWRE): ETF Research Reports
ISHARS-MTG RE (REM): ETF Research Reports
US-DVSFD RE (PPTY): ETF Research Reports
VIRTS-RA INCM (TRUE): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
