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 AvalonBay Communities, Inc. (NYSE:AVB) 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).
An aerial view of a bustling metropolitan area with high-rise buildings and busy streets.
AvalonBay Communities, Inc. (NYSE:AVB)
Number of Hedge Fund Holders: 42
Value of Hedge Fund Holdings: $699,292,000
AvalonBay Communities, Inc. (NYSE:AVB) is a multifamily REIT with 30 years of experience in developing, maintaining, and managing apartment units. The apartments span across 12 American states and Washington DC.
In Q1 2024, AvalonBay Communities, Inc. (NYSE:AVB) recorded core funds from operations growth of 5.1%. This was 350 basis points higher than the company’s previous outlook. Furthermore, the same-store revenue growth rose by 4.2%, which was 90 basis points higher than the previous forecast.
AvalonBay Communities, Inc. (NYSE:AVB) also shared that its developments and lease-ups are experiencing strong absorption rates and recording rents and returns above pro forma expectations.
The average price target for AvalonBay Communities, Inc. (NYSE:AVB) is $207.5, as per the projections of 14 analysts from Wall Street over the past 3 months. Among these, the highest price target is $230, while the lowest forecast stands at $194. On average, this implies a 5.2% upside from the last stock price of $197.2.
At the end of Q1 2024, 42 hedge funds reported owning a stake in AvalonBay Communities, Inc. (NYSE:AVB). Citadel Investment Group was the leading investor in the company, with a stake worth over $141 million.
Overall AVB ranks 1st 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 AVB 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 AVB 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.