We recently published a list of The 10 best real estate and property stocks to buy according to hedge funds. In this article, we take a look at where CBRE Group, Inc. (NYSE:CBRE) stands compared to other real estate and property stocks.
US real estate market: A market that has been stuck in a dead end for too long
Rising mortgage rates and skyrocketing home prices have long pushed American homebuyers out of the market. The situation appears demoralizing, as economists at Bank of America expected the market to remain stagnant until 2026 or even longer. Home prices are expected to rise 4.5% in 2024 and another 5% in 2025. A critical issue weighing on first-time buyers is the rate lock-in effect, the effect that causes existing homeowners to be reluctant to sell their homes because they will have to pay a higher mortgage on a new home. Although this effect has limited the supply of homes on the market, it could continue for another 6 to 8 years. Under such conditions, the gap between rich and poor has widened, as current homeowners have more financial flexibility while a large portion simply cannot afford a home.
Long-awaited Fed rate cuts: What can we expect?
With mortgage rates currently falling to their lowest levels since May 2023, demand for mortgages from both homebuyers and homeowners has skyrocketed as applications to refinance a home loan increased. The real estate industry is looking with great interest at the rate cut announced by the Fed for September. Some experts believe that this may ease homebuyers’ affordability concerns in the short term. However, the cut is expected to be small rather than repeating the historically low interest rates seen during the pandemic. On the contrary, Nick Villa, an economist at Moody’s, believes that the rate cut is unlikely to solve the housing crisis, although a lower mortgage rate could provide some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply, which remains the central and unresolved problem in the market.
It is important to also consider the impact of Fed interest rates on homebuilders. Stephen Kim, head of housing research at Evercore ISI, explained in an interview with CNBC how the current falling rates have prepared homebuilders for a nice fall that will bring a rebound in demand. He pointed to the same problem of tight supply, as there is a 3.8 month supply of used homes available on the market in the U.S., while it was usually 5 to 6 months. Under these circumstances, he expects a very tight market with little pressure on home prices. While the actual Fed rate cut may not have a major impact on mortgage rates, it will drive potential homebuyers out of their apartments to look for a home. In summary, the future of the U.S. housing market appears promising for homebuilders, while homebuyers may be temporarily satisfied as the rate cut will not have as much of an impact on mortgage rates and on a market severely plagued by the unavailability of homes.
Our methodology:
To create a list of the 10 best real estate and land stocks to buy according to hedge funds, we first use a stock screener to create an expanded list of relevant companies with the highest market capitalization. We then selected the top 10 stocks from our list that had the highest number of hedge fund holders. The 10 best real estate and land stocks to buy according to hedge funds were sorted in ascending order of the number of hedge funds holding shares in them (as of Q1 2024).
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).
A downtown skyline highlighting a successful real estate services company.
CBRE Group, Inc. (NYSE:CBRE)
Number of hedge fund holders: 54
CBRE Group, Inc. (NYSE:CBRE) is a commercial real estate services and investment firm headquartered in Dallas, Texas. The company operates in all areas of commercial real estate and claims to be the global market leader in leasing, property sales, outsourcing, property management and valuation. With over 130,000 employees, the company serves clients in over 100 countries worldwide. These clients are served through three business segments, including REI (Real Estate Investments), Advisory Services and GWS (Global Workplace Solutions).
CBRE Group, Inc. (NYSE:CBRE) has the privilege of being the largest commercial real estate developer in the United States, with $148 billion in assets under management in its investment management business. As of March 2023, the company recorded a market share of 53% compared to 47% for its peers. This market-leading competitive position is what sets the company apart from the competition. The highly resilient business lines and sufficient investment capacity are further drivers for long-term growth.
In the most recent fiscal quarter, each of the three business segments exceeded expectations for both net revenue and segment operating profit. While the GWS (Global Workplace Solutions) and Advisory segments together achieved double-digit net revenue growth for the first time in 18 months, the REI segment experienced an uptick in activity and is in the process of arranging the sale of well-priced development assets, which is expected to close in the fourth quarter.
As mentioned, CBRE Group, Inc. (NYSE:CBRE) has a strong leadership position in a growing industry. The stock currently trades at 23 times forward earnings, a 36% discount to the sector. As of March 31, the company was owned by 54 hedge funds. Therefore, CBRE Group is one of the best real estate stocks to buy.
Overall CBRE 3rd place on our list of the best real estate and property stocks to buy. While we recognize CBRE’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than CBRE but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
