In this article, we will take a look at the current dynamics of US real estate while covering the 10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds.
US Real Estate: A Market Stuck for Too Long
Soaring mortgage rates and sky-high home prices have pushed American homebuyers out of the market for long. The situation seems demoralizing as economists at Bank of America expected the market to remain stuck until 2026 or even longer. Home prices are expected to rise by 4.5% in 2024 and then by another 5% in 2025. A critical issue hurting first-time buyers is the rate lock-in effect, the effect due to which existing homeowners remain unwilling to sell their houses since they will have to pay a higher mortgage on a new home. While this effect has restricted the supply of homes in the market, it might persist for another 6 to 8 years. In such conditions, the divide between have and have nots has amplified since current homeowners have more financial flexibility while a large proportion can simply not afford to own a house.
Long Awaited Fed Rate Cuts: What Can We Expect?
With mortgage rates currently dropping to their lowest since May 2023, the mortgage demand from both homebuyers and homeowners surged as the applications to refinance a home loan climbed. The housing industry has its eyes on the interest rate cut which had been signaled by the Fed to take place in September. Some experts believe that it could ease the affordability concerns of homebuyers in the short run. However, the cut has been expected to be rather small than replicating the historically low rates during the pandemic. On the contrary, Nick Villa, a Moody’s economist, is of the opinion that the rate cut is unlikely to solve the housing crisis although a lower mortgage rate might offer some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply which continues to be the core and unaddressed problem in the market.
It is important to consider the Fed’s rate impact on homebuilders as well. Evercore ISI head of housing research, Stephen Kim, in an interview with CNBC, shed light on how the currently dropping rates have set homebuilders for a nice fall which will witness a rebound in demand. He pointed out the same short supply dilemma where the US has 3.8 months of supply of resale homes on the market which used to be 5 to 6 months, normally. Under these circumstances, he expects a really tight market with low pressure on home prices. While the Fed actually cutting rates might not have a huge impact on mortgage rates, it will drive the would-be homebuyers out of their places to look for a home. In conclusion, the future of the US housing market seems promising for homebuilders while homebuyers might be subject to temporary gratification since the interest rate cut won’t make that much of an impact on the mortgage rate and on a market deeply plagued with the unavailability of houses.
With this context, let’s discuss the 10 best real estate and realty stocks to buy according to hedge funds.
Aerial view of a portfolio of retail properties, depicting the company’s real estate investments.
Our Methodology:
In order to compile a list of the 10 best real estate and realty stocks to buy according to hedge funds, we first use a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best real estate and realty stocks to buy according to hedge funds have been arranged in ascending order of the number of hedge funds that have stakes in them, as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds
10. Public Storage (NYSE:PSA)
Number of Hedge Fund Holders: 36
Public Storage (NYSE:PSA) is an owner, operator, and developer of self-storage facilities. The company opened its first self-storage facility in 1972 and has become the largest owner and operator of self-storage facilities globally. It also serves as one of the biggest landlords across the world with more than 170 million net rentable square feet of real estate.
Clearly, Public Storage (NYSE:PSA) is a leader in the self-storage industry. With 51 years in operation, 3,369 properties, $4.5 billion in 2023 revenues, and thousands of locations across the US and Europe, the company has a significant place in the industry. With half of the U.S. population residing within a Public Storage trade area, the firm has an unmatched owned scale and locations as its competitive advantage. The income growth profile also outpaces the wider real estate space. While high-growth lease-up properties now account for 22% of the total portfolio, the company has accelerated external growth for itself.
Since the beginning of 2019, the firm’s portfolio size has expanded by 35% through $11 billion of investment and an addition of 56 million square feet. Resilient income generation, a growth-oriented balance sheet, and the potential for robust external growth make Public Storage (NYSE:PSA) an iconic brand with consumer recognition. Public Storage (NYSE:PSA) ranks 10th among the best real estate and realty stocks to buy now.
9. Welltower Inc. (NYSE:WELL)
Number of Hedge Fund Holders: 36
Welltower Inc. (NYSE:WELL) is known for delivering healthcare infrastructure by providing real estate capital to leading seniors housing operators, post-acute care providers, and health systems. The company was incorporated as a healthcare REIT in 1985 and has a history of over 40 years of investing in health care. It owns interests in seniors housing and post-acute communities, and outpatient medical properties concentrated in high-growth markets in the US, Canada, and the United Kingdom.
The company relationship network and premier-quality healthcare real estate portfolio have made it quite popular. Welltower Inc. (NYSE:WELL) has a major focus on seniors housing which is rather needs-based and is a domain that highly aligns with external market conditions. An accelerating 80+ population growth in the US is a theme expected to persist in the coming years. The company is set to benefit from the strong demand for senior housing. With construction starts not being enough to cater to this demand implying a diminishing new supply, Welltower Inc. (NYSE:WELL) is in a good position to sustain its occupancy growth in 2024. The company expects an extended period of compounding cash flow and revenue growth driven by this trend.
Although the firm’s revenue for the second quarter slightly dipped by 2% from the last quarter, the revenue has improved year-over-year. It has also updated its outlook for 2024 funds from operations (FFO) to fall between $4.13 and $4.21 per share rather than the previous range of $4.05 to $4.17 per share. In this quarter alone, income from senior housing climbed 21.7%.
The leading position in health care infrastructure and changing demographics bringing in a strong momentum for growth deems Welltower Inc. (NYSE:WELL) a good investment. The stock was held by 36 hedge funds as of March 31. WELL is one of the best real estate and realty stocks to buy now.
8. Digital Realty Trust, Inc. (NYSE:DLR)
Number of Hedge Fund Holders: 37
Digital Realty Trust, Inc. (NYSE:DLR) is a real estate investment trust which was incorporated in Maryland in March 2004 and owns, operates, and invests in carrier-neutral data centers. The company delivers the full spectrum of data center, colocation, and interconnection solutions. These flexible, secure, and scalable data center solutions are meant to support enterprises and service providers and to meet critical infrastructure needs. The firm was incorporated in Maryland in March 2004.
The REIT’s leading data center platform capitalizes on the growing global demand from a diversified customer base. It has a global footprint with local expertise and connectivity to the locations that matter most with more than 300 data centers across over 25 countries and over 50 global metros. As of March 31, the company serves as the 7th largest publicly traded REIT in the United States which has an enterprise value of $64 billion and has witnessed 20 years of consecutive revenue growth. Since the company’s focus is on data centers, digital transformation is expected to drive strong demand.
The strength of demand for data center capacity can be seen in the second quarter results of Digital Realty Trust, Inc. (NYSE:DLR). With $164 million of new leasing executed in this quarter along with the last quarter’s record leasing, the REIT witnessed a record first half of the year. With record new log-ins and near-record bookings in each of the zero-to-one-megawatt and interconnection categories, the company also recorded one of the strongest quarters ever in the zero-to-one-megawatt plus interconnection segment.
Digital Realty Trust, Inc. (NYSE:DLR) remains well-positioned to take advantage of the demand for data center capacity especially for larger capacity blocks in its core markets. The firm expects to accelerate top-line and bottom-line growth for the remainder of 2024 which is a positive sign. As of March 31, the stock was held by 37 hedge funds which ranks it in 8th position on our list of the best real estate stocks to buy now.