Is Invitation Homes Inc. (INVH) the Leading Residential Real Estate Stock in 2024?
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 Invitation Homes Inc. (NYSE:INVH) 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 contemporary single-family house at dusk in a residential neighborhood.
Invitation Homes Inc. (NYSE:INVH)
Number of Hedge Fund Holders: 28
Value of Hedge Fund Holdings: $618,348,000
Invitation Homes Inc. (NYSE:INVH) is a single-family home leasing and management company based in the United States. The company specializes in providing top-notch residential properties that are in convenient proximity to offices, education centers, and transport channels.
The company owns and manages more than 80,000 homes across 16 top American markets. The houses are located in desirable neighborhoods and are integrated with Smart Home Tech to increase client satisfaction. This approach has allowed Invitation Homes Inc. (NYSE:INVH) to achieve an 80% resident retention rate.
In Q1 2024, Invitation Homes Inc. (NYSE:INVH) reported a diluted earnings per share of $0.23. This reflected a YoY increase of 15%. Meanwhile, the company’s revenue was recorded at $646.04 million, up from $624.32 million in December 2023.
Analysts have given Invitation Homes Inc. (NYSE:INVH) an average rating of "Moderate Buy." Among the analysts, 7 recommend holding the stock, while 6 suggest buying it. The average target price is $37.83, with estimates ranging from a low of $36 to a high of $40.
This new average target price represents an over 7% increase from the current price of $35.31, indicating a generally bullish outlook on Invitation Homes Inc. (NYSE:INVH) stock.
Here’s what Baron Funds said about Invitation Homes Inc. (NYSE:INVH) in its Q3 2023 investor letter:
“Following strong second quarter results, we modestly increased our investments in single-family rental REITs Invitation Homes, Inc. (NYSE:INVH). Demand conditions for rental homes are attractive due to the sharp decline in home affordability; the propensity to rent in order to avoid mortgage down payments, avoid higher monthly mortgage costs, and maintain flexibility; and the stronger demand for home rentals in suburbs rather than apartment rentals in cities. Rising construction costs are limiting the supply of single-family rental homes in the U.S. housing market. This limited inventory combined with strong demand is leading to robust rent growth.
Invitation Homes have an opportunity to partially offset the impact of inflation given that their in-place annual leases are significantly below market rents. Valuations are compelling at mid-5% capitalization rates, and we believe the shares are currently valued at a discount to our assessment of net asset value. We remain mindful that expense headwinds and slower top-line growth could weigh on growth later in 2023 and 2024. We will continue to closely monitor business developments and will adjust our exposures accordingly.”
Overall INVH ranks 5th 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 INVH 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 INVH 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.