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Investment strategy
July 4, 2021

Which real estate booms will continue?

July 4, 2021
David Bailin
Chief Investment Officer and Global Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist
Busy concentrated young Asian woman working from home
SUMMARY

Prospective US homebuyers face uncertainty over where they might choose to live just as low home inventories drive prices higher. However, we believe fundamentals and valuations are at risk if employers demand a return to a five-day urban work week.

  •  “Work from home” flexibility has meant a boom in single-family suburban housing and a 60% jump in US homebuilder shares since end 2019. Urban rents in the largest cities have fallen and related asset prices have had a meager rebound. This dichotomy could be sustained.
  • Telecommuting carries risks such as cyber-security threats and broader social concerns. On the positive side for economic potential, it opens opportunities for a larger work force to include those with care-giving needs and the disabled. Commuting time and energy (including fuel) is, by definition, a frictional input cost to the economy.
  • Mobility data show greater activity at physical retail and recreation locations than a return to office work. US corporate profits have likely gained more than 50% in 1H 2021 despite the empty cubicles.
  • There are many uncertainties regarding the durability of COVID-impacted real estate trends. While we have been overweight Real Estate since June 2020, we increasingly believe overall assets have appreciated (recovered) too much for all sectors to offer strong returns from here on.
  • We believe that homebuilder shares have achieved much of their gains with some upside for those that can accelerate and sustain higher new home construction levels.
  • We believe that office REITS will see limitations on their recovery depending on the nature of their properties and locations.
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