It’s becoming a tricky real estate market to navigate, but it still affords opportunities for discerning investors looking to get real asset exposure with ETFs such as the Invesco Active U.S. Real Estate ETF (PSR).
Before the start of the pandemic, real estate prices were steadily climbing, but once the pandemic hit, that added rocket fuel to prices. As social distancing measures got more strict, homes essentially became live/work havens.
Prospective home buyers were getting priced out amid tighter supply. Despite the pull of relatively low interest rates, home buyers got pushed back with higher real estate prices.
Now, the Federal Reserve is looking to scale back its stimulus measures to help prop up the economy as inflation starts to rise in tandem with real estate prices. A more hawkish Fed is now looking to raise interest rates this year, which could dissuade future home buyers.
“Limited supply is taking a toll on sales. Pending home sales, which represent signed contracts on existing homes, fell more than expected from November to December, down 3.8%, according to the National Association of Realtors,” a CNBC article reports. “The Realtors blame the drop on the extreme shortage of homes for sale, not on lack of demand.”
“New listings from sellers were down 8% year over year for the week ended Jan. 22, according to Realtor.com,” the report says further. “Those listings have been below historical levels for eight of the last 10 weeks. As a result, active inventory, which is the total number of homes for sale, was down 28% from a year ago.”
Challenging Times Call for Active Management
Adding real estate can be a daunting task for investors given the aforementioned market conditions. That said, it can be best to put real estate exposure in the hands of a professional with the ease of an ETF wrapper using PSR.
PSR structures and selects its investments primarily from a universe of securities included within the FTSE NAREIT All Equity REITs (Real Estate Investment Trusts) Index at the time of purchase. The selection methodology uses quantitative and statistical metrics to identify attractively priced securities and manage risk.
PSR also adds an income component with a quarterly distribution. That comes from the inherent nature of REITs, which must pay at least 90% of their taxable income to shareholders.
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