We recently compiled a list of the 10 Best Real Estate and Realty Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where CBRE Group, Inc. (NYSE:CBRE) stands against the other real estate and realty stocks.
Soaring mortgage rates and sky-high home prices have pushed American homebuyers out of the market for long. The situation seems demoralizing as economists at Bank of America expected the market to remain stuck until 2026 or even longer. Home prices are expected to rise by 4.5% in 2024 and then by another 5% in 2025. A critical issue hurting first-time buyers is the rate lock-in effect, the effect due to which existing homeowners remain unwilling to sell their houses since they will have to pay a higher mortgage on a new home. While this effect has restricted the supply of homes in the market, it might persist for another 6 to 8 years. In such conditions, the divide between have and have nots has amplified since current homeowners have more financial flexibility while a large proportion can simply not afford to own a house.
With mortgage rates currently dropping to their lowest since May 2023, the mortgage demand from both homebuyers and homeowners surged as the applications to refinance a home loan climbed. The housing industry has its eyes on the interest rate cut which had been signaled by the Fed to take place in September. Some experts believe that it could ease the affordability concerns of homebuyers in the short run. However, the cut has been expected to be rather small than replicating the historically low rates during the pandemic. On the contrary, Nick Villa, a Moody's economist, is of the opinion that the rate cut is unlikely to solve the housing crisis although a lower mortgage rate might offer some relief. Even after the rate cut, homebuyers will have to be patient with the limited housing supply which continues to be the core and unaddressed problem in the market.
It is important to consider the Fed's rate impact on homebuilders as well. Evercore ISI head of housing research, Stephen Kim, in an interview with CNBC, shed light on how the currently dropping rates have set homebuilders for a nice fall which will witness a rebound in demand. He pointed out the same short supply dilemma where the US has 3.8 months of supply of resale homes on the market which used to be 5 to 6 months, normally. Under these circumstances, he expects a really tight market with low pressure on home prices. While the Fed actually cutting rates might not have a huge impact on mortgage rates, it will drive the would-be homebuyers out of their places to look for a home. In conclusion, the future of the US housing market seems promising for homebuilders while homebuyers might be subject to temporary gratification since the interest rate cut won't make that much of an impact on the mortgage rate and on a market deeply plagued with the unavailability of houses.
Our Methodology:
In order to compile a list of the 10 best real estate and realty stocks to buy according to hedge funds, we first use a stock screener to make an extended list of the relevant companies with the highest market caps. Moving on, we shortlisted the top 10 stocks from our list which had the highest number of hedge fund holders. The 10 best real estate and realty stocks to buy according to hedge funds have been arranged in ascending order of the number of hedge funds that have stakes in them, as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A downtown skyline, highlighting a successful real estate services company.
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 firm operates across every dimension of commercial real estate and claims to have the leading global market position in leasing, property sales, outsourcing, property management, and valuation. With an employee base of over 130,000, the company serves clients in over 100 countries across the globe. 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 to serve as the largest commercial property developer in the United States with $148 billion of assets under management within its Investment Management business. As of March 2023, the firm revealed a 53% market share as compared to 47% going to its peers. This market-leading competitive position is what makes the firm stand out from the competition. The highly resilient business lines and sufficient investment capacity are further driving forces for long-term growth.
During the last fiscal quarter, each of the three business segments outperformed expectations for both net revenue and segment operating profits. While the GWS (global workplace solutions) and Advisory segments together delivered double-digit net revenue growth for the first time in 18 months, the REI segment witnessed an upturn in activity and is contracting to sell development assets at good valuations as expected to complete in the fourth quarter.
As aforementioned, CBRE Group, Inc. (NYSE:CBRE) is in a strong leadership position in a growing industry. The stock is currently trading at 23 times its forward earnings, a discount of 36% to the sector. As of March 31, the company was held by 54 hedge funds. Thus, CBRE Group is a top real estate stock to buy.
Overall CBRE ranks 3rd on our list of the best real estate and realty stocks to buy. While we acknowledge the potential of CBRE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CBRE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.