Real Estate Stocks Are Poised for a Double-Digit Rally

The real estate market is booming...

Home prices recorded an 11.2% annual gain in January. That's one of the largest jumps on record.

If you're a property owner, you've likely noticed real estate prices going up in your area over the last year. And that's been a positive trend for everyone from homeowners to investors.

It's not just physical real estate that's benefiting from this housing boom, though. Real estate stocks are also taking off...

The Dow Jones Equity All REIT Total Return Index hit a new 52-week high in the last month. History shows that we can expect more gains after a new high.

In fact, new 52-week highs have led to gains over the next year 90% of the time. And this situation could lead to new all-time highs for the sector.

Let me explain…

Most folks think of real estate investing as buying a home to rent out. But there’s also a simple way to do it in the stock market.

Real estate investment trusts ("REITs") own, operate, or finance income-producing real estate. They are required to pass on 90% or more of that income to shareholders via dividends. In return, companies operating as REITs get certain tax advantages.

This gives investors a way to access the real estate market without owning physical land themselves.

Importantly, the broad REIT market has been thriving as the housing boom accelerates. This sector is up 72% since bottoming in March 2020. And it recently hit a new 52-week high. Check it out...

You can see the breakout in the chart above. And you can see it has been a one-way move higher for the REIT sector. That might seem worrying. But history shows that the rally isn't over yet...

Similar setups have led to even higher highs 90% of the time since 1990. And that has led to slight outperformance over the next year. Take a look...

REITs have done darn well since 1990... returning 11.7% a year. But you can do slightly better if you buy after setups like today's...

Since 1990, similar instances have led to 4.2% gains in three months, 5.4% gains in six months, and a 12.3% gain over the next year. More importantly, the odds of a winning trade are heavily in your favor. Again, these circumstances have led to winning trades 90% of the time.

Even with the recent rally, REITs haven't hit new all-time highs yet. But this could change that.

A 12% move from today's price would put the sector at its highest level in history. And that could be another milestone that keeps the rally going.

Either way, it's not every day that you get a 90% chance to make double-digit gains in a year. But that's exactly what's possible in REITs now.

You can easily make the trade with an exchange-traded fund like the iShares U.S. Real Estate Fund (IYR). It holds a basket of REITs. And it should benefit from the trends in place right now.

Good investing,

Chris Igou

Further Reading

While you don't need to invest in property to profit from the real estate boom, buying a house to rent or own is still a great opportunity today. All the tailwinds are there – especially if you choose the right location... Learn more in our two-part series here and here.

"When it comes to housing, it's always about supply and demand," Steve says. These fundamentals are completely out of balance today. And that means one thing: Home prices can keep right on booming... Read more here.

Market Notes
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eBay (EBAY)… online marketplace
Microsoft (MSFT)… tech giant
Nvidia (NVDA)… chipmaker
Crown Castle (CCI)… wireless infrastructure
CBRE Group (CBRE)… real estate services
Home Depot (HD)… home improvement
Moody’s (MCO)… credit-ratings firm
Alleghany (Y)… insurance
Brown & Brown (BRO)… insurance
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Honeywell International (HON)… manufacturing
AutoZone (AZO)… auto parts
American Eagle Outfitters (AEO)… apparel
Starbucks (SBUX)… coffee “World Dominator”
Yum Brands (YUM)… fast-food chains
Keurig Dr Pepper (KDP)… beverages

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Nikola Motor (NKLA)… electric vehicles
XL Fleet (XL)… electric vehicles