News & Media
woman holding model of a house
PeopleImages / Getty Images

Wall Street Thinks American Homes Are Overvalued

With profit as a goal, investors show what they’re thinking by where they put their money – and for now, they’re not putting much money into single-family home projects.

NEW YORK – U.S. single-family properties are the only type of real estate that has increased in value since interest rates began to rise in March 2022. After a brief decline in the months after the Federal Reserve’s initial rate hikes, house prices resumed their upward trend.

Based on the latest numbers from the S&P CoreLogic Case-Shiller Home Price Index, Residential property values reached a record in July. However, listed real-estate investment trusts (REITS) that specialize in single-family homes have either slowed their buying or become net sellers.

For big corporate landlords that want to grow their portfolios, a better option than paying today’s high prices on the open market may be to build new homes.

Meanwhile, shares of U.S. single-family housing REITs trade at a 20% discount to their gross asset value, according to Green Street’s director of research, Cedrik Lachance. This is an indicator of where shareholders think the value of the homes in these companies’ portfolios are headed.

Industry analysts say it is a worrying development when Wall Street no longer shows up at viewings.

The monthly cost of a new mortgage is now 42% of U.S. median household income – 10 percentage points higher than on the eve of the 2008 housing crash, based on UBS’s analysis. With few buyers or sellers, some worry the market might simply freeze.

Source: Wall Street Journal (10/03/23) Ryan, Carol

© Copyright 2023 INFORMATION INC., Bethesda, MD (301) 215-4688