Real estate stocks end third quarter flat
September wasn’t exactly a month to remember for real estate equity investors.
Shares of real estate companies fell from record highs this month to end the third quarter roughly where they started, erasing the gains of July and August.
The drop in valuations was caused by multiple factors, from over-leveraged Chinese real estate developers to a lingering variant of the Delta and the Federal Reserve suggesting it would reduce its support for the economy – including the mortgage market – in November.
The overall share price of listed real estate companies fell 0.25% in the third quarter after posting a 9% gain in early September, according to the Real Estate Select Sector Index, which matches the performance of stock prices. listed real estate companies.
Retail and hotel REITs rose in the quarter as the economy continued to reopen. Office buildings underperformed, trading at a 16% discount to consensus asset values, according to John Kim, REIT analyst at BMO. Meanwhile, REITs in general were trading at a 7% premium to the value of their assets.
“Fears about the Delta variant are fading and clarity on when and how workers will return to the office should emerge in the next three to six months,” Kim said.
Homebuilder stocks posted a similar performance, falling 3% in the quarter after gaining 6% earlier in the month, according to ETF S&P Homebuilders.
Homebuilding giant Lennar said supply chain disruptions caused it to deliver fewer homes than expected. “The supply is short and the demand is strong,” company president Stuart Miller said during Lennar’s third-quarter earnings call, adding that he expected delays in supply chain continue. As a result, house prices have experienced historic inflation.
While real estate can hedge against inflation by storing rising value alongside other asset prices, the economic disruption caused by Covid has kept investors from rushing despite the threat of continued inflation.
Markets rose on Friday, the first day of the fourth quarter, but ended the week still down.