The media tells us that residential real estate is in recovery, with Money magazine declaring on its April cover that “Housing Is Back!” Investors who want to get in on this recovery, however, need to pick their funds carefully.
Few funds specialize exclusively in housing and residential real estate, but those that do enjoyed nice returns last year and are expected to enjoy even fatter returns this year.
Fidelity’s Select Housing and Construction Fund (FSHOX), for example, enjoyed a 38 percent return last year, and Baron Real Estate (BREFX) gained 42.6 percent, according to Morningstar real estate analyst Robert Wherry.
Holger Boerner, who manages the Fidelity fund, says that housing cycles typically last anywhere from five to 10 to 12 years.
“We are in the early stages of a housing recovery,” Boerner argues, “after five plus years of imbalance between housing supply and housing demand, driven by a lot of overbuilding, I think starting in the early part of 2011 and strengthening through 2012, we’ve seen these factors go into much more of an equilibrium.
“In some areas of the country with a lot less housing supply, we’ve seen demand for residential real estate pick up dramatically,” he adds. Boerner has been with Fidelity for six years. He focused on commercial real estate for much of his time there and in the last 16 months he’s focused on residential real estate.
The existing supply of new homes should be bought up in about four-and-a-half to five months, he argues. “Whenever that number drops below six months, it becomes a seller’s market,” he says. In parts of the country, including sections of California, Phoenix, Miami and Orlando, Fla., the threshhold is closer to two to three months, he adds.
Unemployment rates have come down in many areas and that’s a favorable driver, combined with record low mortgage rates. Boerner expects positive returns for the rest of 2013. So what is Borner investing in and why?
At the end of the fourth quarter, FSHOX was heavily invested in home building firms Toll Brothers and Lennar, and in home improvement retailers Home Depot and Lowe’s.
“Both companies have seen very favorable trends as it relates to improving the value of one’s home,” he says.