Key Point
- The National Association of Realtors (NAR) has lowered commission rates, changing the landscape of the real estate industry.
- Three stocks are currently the market's top picks, and Wall Street predicts they'll have double-digit growth and upside potential.
- This important shift in the industry awaits a multi-cycle portfolio. Take advantage of it today.
- 5 stocks we like better than Barclays
You may be one of the millions of Americans celebrating the National Association of Realtors (NAR)'s decision to eliminate the old real estate transaction business model. His 6% commission structure, which attracted many to the real estate sales and marketing profession, is now obsolete.
This development means wiping out millions of agents and their commission costs across the industry, but it also creates a number of opportunities for investors. Although most brokerages will spend less on marketing, those already at the top will continue to take market share. But that's not all.
companies like Jiro Group Co., Ltd. NASDAQ:Z will be the go-to platform for these top brokerages to sponsor real estate listings. This allows Zillow to give additional pricing powers to the advertising service. More than that, lower home buying costs can stimulate new activity, which is why mortgage originators like it. Walker & Dunlop Co., Ltd. New York Stock Exchange:WD You can also earn additional profits.
Another group of real estate stocks that could benefit are real estate investment trusts (REITs), including: Equity Lifestyle Properties Co., Ltd. New York Stock Exchange:ELS. We expect these companies to increase their net worth for two reasons. First, acquire more properties to manage. Second, they will collect rental income from, or simply participate in financing, the coming new housing demand boom.
buffett effect
After buying up stocks of construction names like DR Horton Co., Ltd. New York Stock Exchange: DHI Warren Buffett and others started a wave of curious analysts investigating the real estate sector for further trends and opportunities. It's too late to get into the name of homebuilding (they rallied too hard), but you can get into the lateral movements that are going to happen.
It turns out the old oracle was right again.by Intercontinental Exchange Co., Ltd. New York Stock Exchange: IceThe average interest rate on most mortgages held today is 3.25%, so most homeowners have no intention of selling, especially now that mortgages are above 7%.
For the same reason, not many people are willing to buy a home and take on such a high loan interest rate. Beyond that, the average home price is currently $492,300. This average price is up $107,700 from the pre-pandemic average price of $384,600.
The only way out of this situation is to build up inventory, which could relieve some of the pressure on home prices and mortgage rates. Buffett's bet was correct. However, there is still a long way to go before this trend ends.
Full Cycle Portfolio is here
There must be a reason Jeffries Financial Group, Inc. New York Stock Exchange: Jeff and JPMorgan Chase & Co. New York Stock Exchange:JPM Analysts recently upgraded Zillow stock. As of March, Jefferies valued the real estate platform at up to $75 per share, representing a net upside of 53% from today's price.
Beyond that, JPMorgan analysts maintained their January price target of $65 per share, implying a 33% upside. Knowing what we know now, it's no wonder the market is buying up this stock.
The expected 35% earnings per share (EPS) growth over the next 12 months is reason enough to give Zillow a high valuation. Therefore, the company's expected P/E ratio of 21 times is a 79% premium to the average valuation of the real estate business, which is 11.7 times.
The second step after selling your property on Zillow is financing, so the party starts there. Home loan originator Walker & Dunlop is particularly on board with this bullish trend. barclays New York Stock Exchange: BCS It purchased up to $3.1 million worth of stock in February.
Wedbush analysts also see a wave coming, raising their price target to $130 per share in February. For these valuation targets to prove correct, the stock would need to rise as much as 44% from today. Accepting this trend, the market also pays a high price for this stock.
EPS growth is expected to be 30% this year, and analysts expect the stock to trade at an 80% premium to the mortgage industry's average forward P/E of 8.8x. Despite a recent 22% decline in Walker & Dunlop stock, its forward P/E has increased to 16x based on expected EPS growth.
Last but not least, Equity Lifestyle Properties is included in this cycle portfolio. Barclays decided to buy the REIT in February for up to $9.9 million. Meanwhile, the stock price fell 12% in the last quarter. We're probably expecting a reversal of the decline in this important industry trend, and the market is also anticipating a higher ceiling going forward.
Trading at a forward P/E of 21.2x, Equity Lifestyle commands a 40% premium to the average valuation of a residential REIT with a forward P/E of 15.4x. As REITs take on more properties in their portfolios and real estate prices continue to rise due to new demand, the market will prove right in paying a higher price for this property.
Hear this before considering Barclays.
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