Real Estate Investors Alert: September Listings Reach Three-Year High – Top Stocks and ETFs to Watch

Market Dynamics and Inventory Surge

In September 2024, the housing market experienced a notable increase in active listings, marking a 34% year-over-year growth, the highest since April 2020. This surge is attributed to several factors, including a decline in mortgage rates and a shift in seller sentiment. The average 30-year fixed mortgage rate dropped to 6.12% in early October 2024, down from a peak of 7.79% in October 2023. This decline has enhanced purchasing power for buyers, encouraging more homeowners to list their properties.

Despite the increase in listings, the market remains characterized by affordability challenges and cautious buyer sentiment. The median home price in September 2024 was $425,000, a slight decrease from the previous year, yet still high enough to deter many potential buyers. Additionally, homes spent an average of 55 days on the market, the longest duration for any September in the past five years, indicating a slower sales pace.

Redfin, Compass, and Zillow: Stock Performance and Prospects

Redfin Corporation (NASDAQ: RDFN)

Redfin has been a focal point for investors due to its innovative approach in the real estate sector. As of October 4, 2024, Redfin’s stock was priced at $11.11, reflecting a significant increase of almost 110% over the past three months. This surge is largely driven by optimism surrounding a potential recovery in the housing market, fueled by falling mortgage rates.

Despite this positive momentum, Redfin faces challenges, including ongoing losses and a high debt-to-equity ratio of 295.91. The company’s revenue rebounded with a 7% growth in the second quarter of 2024, yet it continues to operate at a loss, with a net loss of $137.50 million over the trailing twelve months. Analysts have a consensus rating of “Hold” for Redfin, with a 12-month price target of $7.88, indicating potential downside risks.

Compass, Inc. (NYSE: COMP)

Compass, another key player in the real estate market, has been navigating a challenging environment marked by high competition and regulatory changes. While specific stock performance data for Compass in September 2024 is not provided, the company has been focusing on enhancing its technology platform and expanding its market presence. Compass’s ability to leverage its technology-driven approach to streamline real estate transactions could position it well for future growth, especially as the market stabilizes.

Zillow Group, Inc. (NASDAQ: ZG)

Zillow remains a dominant force in the residential real estate market, with significant user engagement and a promising product pipeline. The company’s stock performance has been influenced by market dynamics, including the surge in home listings and regulatory changes. Analysts project an increase in Zillow’s EBITDA margin by approximately 600 basis points over FY24-26E, reaching 27.4%. This growth potential, coupled with a decline in interest rates, could enhance Zillow’s market position and drive future stock performance.

Real Estate ETFs: VNQ and SCHH

Vanguard Real Estate ETF (VNQ)

The Vanguard Real Estate ETF (VNQ) is a popular choice for investors seeking exposure to the real estate sector. As of 2024, VNQ has gained 29.9% over the past year and 14.9% over the past six months, reflecting strong performance amidst market fluctuations. The ETF’s top holdings include Prologis, Inc., American Tower Corporation, and Equinix, Inc., providing diversified exposure to various real estate segments.

VNQ’s low expense ratio of 0.12% and a dividend yield of 3.78% make it an attractive option for investors seeking income generation and capital appreciation. As mortgage rates decline, VNQ’s exposure to REITs, which often rely on borrowing for growth, could benefit from enhanced profitability, making it a compelling investment choice.

Schwab U.S. REIT ETF (SCHH)

The Schwab U.S. REIT ETF (SCHH) is another strong contender in the real estate ETF space. With a 31.5% gain over the past year and a 16.1% increase over the past six months, SCHH has demonstrated robust performance. The ETF’s top holdings mirror those of VNQ, including Prologis, Inc. and American Tower Corporation, offering similar diversification benefits.

SCHH’s low expense ratio of 0.07% and a dividend yield of 2.89% further enhance its appeal to investors. As the housing market continues to adjust to changing conditions, SCHH’s focus on REITs positions it well to capitalize on potential growth opportunities.

Investment Strategies and Considerations

Navigating Market Volatility

Investors in real estate stocks and ETFs must navigate a complex landscape characterized by market volatility and shifting economic conditions. The recent surge in home listings presents both opportunities and risks, as increased inventory could lead to price stabilization but also prolonged listing periods. Investors should consider diversifying their portfolios to mitigate risks associated with individual stocks and focus on ETFs that offer broad exposure to the real estate sector.

Evaluating Growth Potential

While Redfin, Compass, and Zillow each present unique growth opportunities, investors should carefully evaluate their financial performance, market positioning, and strategic initiatives. Redfin’s innovative approach and recent stock price surge suggest potential upside, but ongoing losses and high debt levels warrant caution. Compass’s technology-driven strategy and Zillow’s strong market presence and product pipeline offer promising growth prospects, but competitive pressures and regulatory changes could impact their performance.

Leveraging ETFs for Diversification

Real estate ETFs like VNQ and SCHH provide investors with diversified exposure to the sector, reducing the risks associated with individual stock investments. These ETFs offer attractive dividend yields and have demonstrated strong performance, making them suitable options for investors seeking income and capital appreciation. As the market continues to evolve, ETFs can serve as a valuable tool for capturing growth opportunities while managing risk.

Conclusion

The September 2024 surge in home listings marks a significant shift in the U.S. housing market, presenting both challenges and opportunities for investors in real estate stocks and ETFs. Redfin, Compass, and Zillow remain key players to watch, each with unique strengths and potential risks. Meanwhile, real estate ETFs like VNQ and SCHH offer diversified exposure and attractive returns, making them compelling investment choices.

As the market continues to adjust to changing conditions, investors should remain vigilant, carefully evaluating market trends, financial performance, and strategic initiatives. By leveraging a diversified investment approach and focusing on growth potential, investors can navigate the complexities of the real estate market and capitalize on emerging opportunities.