SA Asks: How will REITs, homebuilder stocks be impacted by the election?

seekingalpha
08 Nov 2024

mphillips007

Now that Election Day is over, investors will be eager to find out how the results will impact specific sectors.

Which brings us to our latest SA Asks question: How will the U.S. election results impact REITs and homebuilder stocks?

We asked Seeking Alpha analysts Leo Nelissen and REITer’s Digest to weigh in.

Leo Nelissen: I expect both REITs and homebuilders to do well in a Trump economy. If President Trump manages to pull off an economic recovery with more participation from the lower and middle classes, this could bode very well for REITs dependent on successful tenants and homebuilders serving a housing market with limited supply.

However, these two sectors would not be my go-to areas to put cash to work. Immediately after the Trump win, longer-term interest rates jumped. This is likely the result of investors pricing in a prolonged elevated budget deficit and potentially higher inflation.

Although I do not believe this will derail the bull case, it increases lending costs for REITs and (potential) homebuyers, which is why both these segments could underperform in an overall bullish market environment.

REITer’s Digest: Investors tend to overemphasize short-term risks in their decision making, this election being no exception. Looking past the election’s outcome, the macroeconomic outlook for both real estate and homebuilders remains positive as the Federal Reserve continues to hint towards more rate cuts.

REITs stand to benefit from interest rate cuts as their cost of capital declines and common stock becomes more attractive to investors. Following several years of limited activity, rate cuts could further accelerate a hot real estate market.

Homebuilders benefit from rate cuts in a variety of ways. One clear correlation is declining mortgage rates, which causes the cost of homeownership to decline for prospective buyers. Homebuilders have also benefited from a tempering labor market and normalized inflation, which have helped reduce the cost to build.

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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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