Property Market Tug-o-War

We’ve witnessed a major tug-o-war in the property market ever since real estate prices crashed a few years back.

Homeowners fled… flocks of renters began knocking on landlords’ doors… homebuilders laid off hundreds of thousands of employees… and, as Rodney highlights, big, institutional money flowed into the best deals.

Immediately following the crash, apartment real estate investment trusts (REITs) became popular as the rental market was swamped with eager renters. Meanwhile, homebuilders nearly shuttered their operations as nobody wanted to build.

This trend is evident in the ratio chart below. I’ve taken a popular homebuilder ETF (XHB) and divided it by an apartment REIT ETF (REZ).

See larger image

Between early 2009 and late 2011, apartment REITs dominated. REZ gained an impressive 105%… while homebuilders’ stocks (XHB) were up just 25%.

Then, in late 2012, homebuilders pulled themselves up by the bootstraps. From this point through present day, XHB has surged 104% higher… while REZ gained just 30%.

Looking forward… I expect this trend to shift once more.

Homebuilder stocks look overextended… and many apartment REITs have pulled back, giving yield-hungry buyers a chance to buy into a favorable trend, at good prices.

Watch for apartment REITs to reassert their dominance over homebuilders’ stocks during the next several quarters.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.