We recently published a list of 13 Most Profitable Real Estate Stocks Now. In this article, we are going to take a look at where Invitation Homes Inc. (NYSE:INVH) stands against the other most profitable real estate stocks now.
As reported by Redfin, buying a home has gotten affordable for the first time since 2020 as homebuyers need to earn $115,000 to afford the typical home. While Senior Economist Elijah de la Campa thinks this could be a good time to buy a home with housing affordability improving for the first time in four years, he thinks the market won't be cheaper in the near future. This is because the Fed's recent rate cut and the following rate cut plans have already been priced into the mortgage rates since they were highly anticipated.
Another optimistic news for homebuyers on the sidelines was the housing payments witnessing the biggest decline in 4 years ahead of the Fed's historic rate cut. These payments have gone down by almost $300 from April's all-time high. The median housing payment was reported to be $2,534 during the four weeks ending September 15, down 2.7% year-over-year. With lower mortgage rates and less inventory, the housing market is still unaffordable for many but it is as good as it gets in the words of Orphe Divounguy, Zillow's senior economist.
Regarding the aforementioned optimism for homebuyers, Robert Reffkin, Compass founder and CEO, stated that homebuyers are much more active than they were before. In his opinion, consumers react more to the change in mortgage rates rather than the absolute rate itself. He told CNBC that buyers now know not to take a relatively lower rate for granted after being through a period of elevated mortgage rates. Meanwhile, the major issue has been the lock-in effect during the preceding 2 years since 75% of the homeowners were locked into 4% mortgage rates or below, a percentage which is now approaching 50%. With declining mortgage rates, he expects the lock-in effect to drop and the housing inventory to grow.
With the declining mortgage rates, refinancings have surged. Mortgage applications hit the highest levels since July 2022 as the rates dropped. According to the Mortgage Bankers Association, applications to refinance or purchase a home in the week that ended September 20 increased 11% week-over-week while the refinancing applications climbed 20% during the period. This marks the 2 consecutive week of double-digit gains in applications. Overall, the refinance activity is still modest with seasonally slow homebuying complemented with high home prices and a shortage of inventory.
Our Methodology:
In order to compile a list of the 13 most profitable real estate stocks, we created an initial list of 30 companies with the biggest market caps. Moving on, we screened out those companies that had a positive net income in the last twelve months and had grown their net income positively over the past 5 years. For the 5-year net income growth, we have considered the compound annual growth rates on a TTM basis. Finally, we ranked the shortlisted companies in ascending order of their hedge funds, as of Q2 2024.
At Insider Monkey we are obsessed with 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) is the largest single-family home leasing and management company in the US. The firm offers various options for leasing an updated home in a desirable neighborhood. With top-level property management, homes in desirable neighborhoods, Smart Home technology features, and its proactive maintenance program, the company sets itself apart from the competition.
Invitation Homes Inc. (NYSE:INVH) has an attractive position as the premier single-family home leasing company in the country. It has an unmatched scale with its portfolio predominantly focused on infill locations which provide better insulation from new supply. The scale is evident from the average of nearly 5,300 wholly-owned homes across the company's 16 core markets. Simultaneously, almost all of the nearly 25,000 JV and third-party managed homes are positioned in the core and identified target markets. Furthermore, it is 33% more affordable to home leasing as compared to home buying in 16 of its core markets.
Invitation Homes has accretive homebuilder relationships and a high-margin third-party management business which helps it deliver outsized AFFO growth. During the year's second quarter, the firm's total revenues increased 8.8% year-over-year to $653 million while AFFO per share increased 4.1% to $0.40. Invitation Homes entered into contracts with its homebuilder partners to construct over 1,000 newly built homes. It also started providing third-party property and asset management services for a portfolio of 3,000 single-family homes for lease which brought the company's total number of managed-only homes to 17,261 as of June 30, 2024.
Therefore, Invitation Homes Inc. (NYSE:INVH) remains well-positioned to continue its industry-leading occupancy and strong growth. As of Q2, the stock is held by 31 hedge funds thereby ranking among the 13 most profitable real estate stocks now.
Overall INVH ranks 9th on our list of most profitable real estate stocks now. While we acknowledge the potential of INVH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued 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 at Insider Monkey.