December New Home Sales: 536,000
New Home Inventory: 5.8 months supply
Median Sale Price: 322,500
Total household mortgage debt: 9.701 Trillion
Building permits (single unit): 817,000
Median Income: 70,766 (November Data)
Fundamentally, we remain constructive on real estate assets given reasonable demand and constrained supply across most sectors. While new supply is growing due to the attractive spread between development yields and cap rates, it is still below both demand and the long-term average. We believe this could lead to further increases in occupancy and rental rates.
Furthermore, ample market liquidity for project financing and an encouraging macro picture should support additional gains.
Increased investor demand due to record levels of investible private capital, foreign and institutional investors increasing their allocations to the space, and the GICS sector reclassification - which has broken out real estate into its own independent sector (previously in Financials) – should be supporting for REITs. In addition, we view the current low-growth and low-rate environment as potentially beneficial to the unique investment attributes of the asset class.
REITs may continue to be viewed favorably by investors, especially relative to fixed income.
Overall, we believe that real estate assets can provide investors with attractive risk-adjusted returns given the asset class’ yield, growth, diversification, and inflation hedge benefits.
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