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).
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.