In 2022 and into 2023, it looks like the U.S. Federal Reserve’s goal is to tamp down inflation by discouraging buying activity. This means continuing to raise interest rates, which could put severe negative pressure on home sales. At the same time, even while many real estate stocks could crash in this scenario, a handful of stocks might actually increase in value amid the chaos.
What I just said might sound far-fetched, but hear me out. Ivy Zelman, a real estate analyst with Zelman & Associates, expects to see U.S. home prices decline 9% by 2024. In the meantime, though, individuals and families have to live somewhere, and interest payments on homes will likely remain elevated for a while.
Therefore, the wrong move is to wager on mortgage lenders or REITs (real estate investment trusts) that focus mainly on houses. Instead, savvy investors might consider holding shares of businesses that concentrate on apartments. After all, people switch to renting when they can’t afford to own a home.
So, to get you started on your journey as a “landlord of stocks,” here are three reasonably valued apartment market stocks to help you withstand and even profit from an impending drop in U.S. home sales.
Camden Property Trust (NYSE:CPT)
Headquartered in Texas, Camden Property Trust owns and manages multi-family apartment communities. The company currently has five properties under development. Upon the completion of those properties, Camden’s portfolio will increase to an astounding 60,267 apartment homes situated across 176 properties.
If you can believe it, Camden Property Trust’s net income ballooned from $31.4 million in 2021’s second quarter to $498.9 million in Q2 of 2022. In the same time frame, Camden’s diluted EPS ramped up from $0.30 to $4.54.
Also, during that span of time, Camden’s total real estate assets grew in value from $7.1 billion to a mind-blowing $9.1 billion. In other words, there’s actually a pretty good chance that you or someone you know resides in an apartment controlled by Camden Property Trust, and you might not even be aware of it. So, feel free to put this 3.25% annualized dividend payer in your portfolio today.
Is CPT Stock a Buy?
Turning to Wall Street, CPT has a Moderate Buy consensus rating based on eight Buys and five Holds assigned in the past three months. The average Camden Property Trust price target is $153.85, implying 35.1% upside potential.
Mid-America Apartment Communities (NYSE:MAA)
Tennessee-based Mid-America Apartment Communities is a REIT that owns and develops apartment communities across the “high-growth Sunbelt region of the U.S.” More specifically, Mid-America had an ownership interest in 101,229 apartment homes (including those in communities under development) in 16 U.S. states and the District of Columbia as of June 30, 2022.
Thus, Camden’s 60,267 apartment homes comprise just slightly over half of Mid-America Apartment Communities’ real estate holdings. In total, as of June 30, Mid-America’s total real estate assets were valued at a whopping $10.8 billion.
Truly, Mid-America is a “steady Eddie” type of investment. From 2021’s second quarter to Q2 of 2022, the company’s revenue increased moderately, and its total property operating expenses only increased slightly. Furthermore, Mid-America’s EPS dipped a little from $1.88 to $1.82.
In other words, despite big changes in the U.S. housing market, Mid-America Apartment Communities stayed on an even keel. Investors who get in soon can sleep soundly at night with a stake in Mid-America stock while also collecting dividends with an annualized yield of 3.39%.
Is MAA a Good Stock?
MAA has a Moderate Buy consensus rating based on seven Buys and six Hold ratings. The average Mid-America Apartment Communities price target is $198, implying 32.4% upside potential.
AvalonBay Communities (NYSE:AVB)
AvalonBay Communities is based in the state of Virginia and develops multi-family communities primarily in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California. The company claims to have been the 12th largest publicly traded REIT as of December 31, 2021.
If you’re getting the impression that AvalonBay is a sprawling real estate giant, you’re definitely on the right track. As of June 30, 2022, AvalonBay Communities owned or held a direct or indirect ownership interest in 299 apartment communities comprising 89,037 apartment homes in the U.S.
Moreover, AvalonBay Communities is a notable revenue grower. From Q2 of 2021 to this year’s second quarter, the company’s revenue increased from $561.7 million to $644.6 million. Also importantly, AvalonBay’s expenses only increased moderately during this time.
Perhaps you’d like to invest in a REIT that’s spread out across multiple areas of the U.S. If so, then consider a long position in AvalonBay Communities, which pays a healthy annualized dividend yield of 3.7%.
Is AVB a Good Stock to Buy?
AVB has a Moderate Buy consensus rating based on six Buys and eight Hold ratings. The average AvalonBay Communities price target is $218.38, implying 24.9% upside potential.
Conclusion: These Stocks Might Shield You from a Real Estate Crash
There’s no guarantee that apartment-focused REITs will thrive if home sales are plummeting. However, they could offer comparatively strong value along with generous dividend distributions. Therefore, feel free to pick and choose among these three apartment REIT standouts. As a strategic stock landlord, you just might enjoy robust returns even while the broader housing market is in free fall.
