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September slump sends real estate stocks back to July

Last month undid share price gains notched during summer

(Unsplash / Pierre Châtel-Innocenti)
(Unsplash / Pierre Châtel-Innocenti)

It wasn’t exactly a September to remember for investors in property stocks.

Shares of real estate companies descended from record highs this month to end the third quarter about where they began, erasing the gains of July and August.

The decline in valuations was caused by multiple factors, from overleveraged Chinese property developers to a lingering Delta variant and the Federal Reserve suggesting it would taper its support of the economy – including the mortgage market – come November.

The aggregate share price of publicly traded real estate companies fell 0.25 percent during the third quarter after notching a 9 percent gain in early September, according to the Real Estate Select Sector Index, which matches the stock price performance of publicly traded real estate companies.

Retail and hotel REITs gained during the quarter as the economy continued to reopen. Office properties underperformed, trading at a 16 percent discount to consensus asset values, according to John Kim, a REIT analyst at BMO. Meanwhile, REITs in general traded at a 7 percent premium to their asset values.

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“Fears of the Delta variant are subsiding and clarity on when and how workers will return to the office should emerge in the next three to six months,” Kim said.

Homebuilders stocks performed similarly, falling 3 percent during the quarter after having gained 6 percent at the start of this month, the S&P Homebuilders ETF showed.

Homebuilding giant Lennar said supply chain disruptions caused it to deliver fewer homes than it forecast. “Supply is short and demand is strong,” company chairman Stuart Miller said during Lennar’s Q3 earnings call, adding he expected supply chain delays to continue. Home prices have experienced historic inflation as a result.

While real estate can hedge against inflation by storing value that rises alongside other asset prices, economic disruptions caused by Covid have kept investors from rushing in despite the threat of continued inflation.

Markets rose Friday, the first day of the fourth quarter, but ended the week still down.

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Office MarketReal Estate FinanceREITS