iREIT Daily

Low Inventory Leads to High Home Prices

Brad Thomas

467 postsAugust 12, 2022

This is going to be one of those “most obvious statements ever” openings. But I still have to say it on the very small chance that someone has been living under a rock for a while.

The housing market has been incredibly hot in the last couple of years. In the wake of our Covid economy, lockdowns, work-from-home schedules, excess stimulus, and wage inflation…

Many Americans have put their money where their mortgages are.

Add that to an already existing undersupply of homes, labor shortages, and material scarcities. The resulting sum is soaring home prices and bidding wars.

In some places, homes have sold tens of thousands above asking price.

Cue the Federal Reserve then, which ticked up interest rates. So far, it appears that effort has produced mixed results.

Yesterday, the National Association of Realtors (NAR) released Q2 housing market data over 185 U.S. metro areas. Demand has slowed due to increased mortgage rates and interest, it found.

But year-over-year median home values rose by double digits in 80% of its sample. In fact, only one metro – Trenton, New Jersey – saw a decrease in median home values.

How are home values continuing to climb if fewer people are willing to bid them up?

The answer lies in the inventory, which is still so low. Even the smaller number of want-to-be buyers far exceeds the number of available homes.

The Wall Street Journal reports:

“Home prices have hit new highs in recent months as the inventory of homes for sale held below historical levels. The median single-family existing-home sales price rose 14.2% in the second quarter from a year ago to $413,500, a record, according to NAR.
“Potential sellers have been reluctant to list their homes in the past two years because they didn’t want to then have to buy in the frenzied market. New-home construction has also been slowed by supply-chain issues and labor shortages.”

In short, many remain willing to pay whatever it takes to secure homeownership. Yet current homeowners are scared to sell for fear of not finding a replacement.

This puts the market in a truly precarious place that’s not exactly easy to remedy.

Moreover, remember a few weeks ago when I wrote about the “Infrastructure Bill”? As more and more construction companies are deployed under government contracts for broadband development and critical municipal infrastructure, the housing market could become even tighter as fewer hands will be available to build homes.

When this perfect storm will end and the housing market seas calm down again is up for debate.

More Non-REIT News to Know About

I know I’ve touched on it more than once, but we’re going to discuss the labor market again. As new data comes to light about labor, wages, and productivity, it seems we’ve truly reached an employee’s paradise.

(At least on the surface. And for today’s focus, we won’t be diving much past that level.)

Walgreens Boots Alliance (WBA) – the parent company of America’s most prominent drug store, Walgreens – is now prepared to offer incoming pharmacists bonuses of up to $75,000.

Apparently, this labor sector has been especially affected by the worker shortage. As such, around 3,000 locations are operating with reduced pharmacy hours – causing Walgreens to lose more and more revenue in its prescription drug business.

Of course, bonus amounts vary by both state and market. And the $75,000 incentive is by far an exception, with $30,000-$50,000 being the norm. In addition, employees must work a certain amount of time before they get their extra pay.

Finally, we have to wonder how successful this push will be. After all, it takes at least six years to become a pharmacist.

So, as with everything else this economy is facing, this issue could last a while.

The World According to REITs

The cannabis industry is one of the most emerging – and opportunistic – markets in the modern real estate investment trust (REIT) world. Which brings me straight to New Lake Capital Partners, Inc. (NLCP).

NLCP is a leading provider of real estate capital to state-licensed cannabis operators through 31 cultivation facilities and dispensaries. They’re leased to single tenants on a triple-net basis.

The other day, the REIT reported its Q2 financials, which are well worth a look.

In terms of revenue, it brought in $10.5 million compared to $10.2 million from the previous quarter. And its adjusted funds from operations (AFFO) also took a bump – totaling $8.7 million compared to $8.1 million.

It also just signed a $34 million aggregate three-part commitment for a cultivation property in Missouri. Once finished, that will be a state-of-the-art 105,000 square-foot cultivation facility.

President and CEO Anthony Coniglio said:

“We continue to be pleased with our AFFO growth, which has allowed us to increase our dividend for the fifth consecutive quarter. While our pipeline is as robust as we have seen in our company history, we remain disciplined in our underwriting approach and focus on quality over quantity.”
“Subsequent to the quarter, we successfully increased our credit facility from $30 million to $90 million, which will allow us to continue investing in high-quality assets. We believe our ability to consistently evaluate high-quality transactions with the best operators in the space and have access to capital from banking partners that believe in our ability to execute is a testament to our team, model and disciplined approach.”

I’m keeping my eyes on this one and look forward to seeing what it can do from here.

Author’s Note: If you do determine this stock is right for you, make sure to purchase it at a smart entry point. Even the best of companies can burn you badly if you buy in at inflated prices.

Happy Investing

Brad Thomas

467 posts

View all my Posts

Brad Thomas is Senior Research Analyst at iREIT and CEO of Wide Moat Research LLC. With over 30 years of real estate experience, he is also long-time Editor of Forbes Real Estate Investor, a monthly subscription-based newsletter that dives deep into the vast world of profitable properties, and since 2021, he has served as an adjunct professor at New York University.

Thomas has also been featured on or in Forbes magazine, Kiplinger's, U.S. News and World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. And he was the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 based on both page views and number of followers.

Thomas is the recently-published author of The Intelligent REIT Investor Guide (2021), co-author of The Intelligent REIT Investor (2016), and he wrote The Trump Factor: Unlocking The Secrets Behind The Trump Empire (2016) - all available on Amazon.

Thomas received a bachelor of science in business/economics from Presbyterian College and is married with five wonderful kids.

Let’s Get Ready for Retail Week

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Low Inventory Leads to High Home Prices

Brad Thomas

467 postsAugust 12, 2022

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Low Inventory Leads to High Home Prices

467 postsAugust 12, 2022

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