Yahoo Finance Is Essex Property Trust, Inc. (ESS) the Top Residential Real Estate Stock to Buy?
We recently compiled a list of the 10 Best Residential Real Estate Stocks to Buy. In this article, we are going to take a look at where Essex Property Trust, Inc. (NYSE:ESS) stands against the other residential real estate stocks.
Residential real estate has become one of the most popular types of real estate investment in recent years. In 2024, the residential real estate market reached a valuation of $11.14 trillion. The market is expected to expand at a compound annual growth rate (CAGR) of 6.07% to reach a value of almost $15 trillion by 2029.
One of the main drivers of this growth is urbanization. People are moving from small towns and rural areas to cities to improve their standard of living and integrate into the modern world. Around 4.4 billion people, or 56% of the global population, currently live in cities. By 2050, it's expected that about 70% of people will reside in urban areas.
Even though more resale homes are hitting the market, the inventory shortage is still high and is expected to continue due to several factors. One major issue is that many homeowners are "locked in" with low mortgage rates and are reluctant to exchange at higher rates in the current expensive market. As a result, demand continues to exceed the supply of homes.
Rick Sharga, founder, and CEO of CJ Patrick Company, a market intelligence and business advisory firm, predicts that we won’t see a significant increase in the supply of existing homes for sale until mortgage rates drop back to the low 5% range, which likely won’t happen until after 2024.
However, the market outlook is not that bleak. There is optimism that both property buyers and sellers are adjusting to a sustained period of higher interest rates. With consensus on pricing, there is hope that the real estate market can rebound from one of its most severe downturns in years. A significant recovery in activity is expected more strongly in 2025 than in 2024.
Andrew Alperstein, Partner, Real Estate, PwC US also thinks that despite the economic challenges and difficulties in accessing credit, there are opportunities in the market for top-tier properties that align with the demands of today’s investors. Companies need to adjust their growth strategies to perform well in this period of higher interest rates. Another Global Investment Manager at PwC commented:
“While event risk remains high, 2024 appears to be a pivot point, moving towards greater liquidity in real estate markets. Though there are good reasons why investors have been hesitant, we're moving towards a period where there's greater clarity. It should be an opportune time to buy.”
Our Methodology
For this article, we conducted an analysis of our database of 919 hedge funds as of Q1 2024. From this extensive dataset, we selected the best residential real estate stocks based on the hedge fund sentiment. The top residential real estate stocks have been ranked in ascending order of the number of hedge funds holding a stake in them as of the first quarter of the year.
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 Real Estate Investment Trust (REIT) property manager inspecting a newly acquired apartment complex.
Essex Property Trust, Inc. (NYSE:ESS)
Number of Hedge Fund Holders: 24
Value of Hedge Fund Holdings: $127,190,000
Essex Property Trust, Inc. (NYSE:ESS) is a publicly traded real estate investment trust, based in San Mateo, California, United States.
In Q1 2024, Essex Property Trust, Inc. (NYSE:ESS) recorded core funds from operations (FFO) per share of 4.9%. The company’s solid performance has mainly been driven by two factors: limited housing supply and higher rental affordability due to wages rising more quickly than rents in Essex markets.
In the company’s markets, the median cost of homeownership is 2.5 times higher than renting. Hence, the percentage of turnover due to home purchases has decreased from the historical average of around 12% to just 5% currently.
This trend indicates a strong potential for continued rent growth in Essex markets due to rental affordability. In the first quarter, Essex Property Trust, Inc. (NYSE:ESS) saw a 2.2% increase in blended lease rates, with new leases rising by 10 basis points and renewals by 3.9%.
Analysts have set 12-month price targets for the stock, with an average target of $264.54. The estimates range from a high of $315 to a low of $236. On May 30, Mizuho Securities maintained a Buy rating on Essex Property Trust, Inc. (NYSE:ESS).
Overall ESS ranks 9th on our list of the best residential real estate stocks to buy. You can visit the 10 Best Residential Real Estate Stocks to Buy to see the other residential real estate stocks that are on the hedge fund radar. While we acknowledge the potential of ESS 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 ESS 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 on Insider Monkey.
