The Fed reiterated that it is expecting to cut interest rates three times in 2024, with June the most likely start of the pivot, and as we saw overnight, it is great news for risk assets. However, it might surprise some to see the Real Estate Sector struggle to keep up with its peers overnight, only advancing +0.26% compared to the S&P500, which advanced by +0.9%, and there are no obvious signs that this relative underperformance will change, primarily because the sector has already moved 25% from its late 2023 low – it’s a very similar picture on the ASX where most names remain up in the short term, but are still well below their post-COVID highs.
- We believe the US Real Estate Sector has already priced in a favourable path for interest rates through 2024/5.
Hence, while we remain bullish on equities, picking an investment path through the property sector will likely remain on a case-by-case basis. For example, in 2024, Goodman Group (GMG) is up over 20%, while GPT and Dexus (DXS) have actually travelled slightly backwards. It’s important to remember that not all ASX property stocks have the same exposure; although lower interest rates should benefit all, most don’t enjoy exposure to the chronic residential property shortage unfolding in Australia, it’s more the domain of entrepreneurs like Harry Triguboff.
This morning, we briefly revisited 4 stocks that could benefit from the current outlook for Australian property, whether through declining interest rates and/or a shortage of residential property. We’ve touched on this area before, but following this week’s interest rate news, we thought it was worth another cursory glance. As we look at this eclectic bunch of stocks, we are asking ourselves whether our exposure is appropriate for this stage of the cycle.
- We remain fans of Goodman Group (GMG) and National Storage (NSR), which MM holds in our Active Growth Portfolio.
We note that while self-storage operator NSR is unlikely to be in an explosive position unless it receives another takeover, it will benefit from the growing population and greater returns on offer for developers in satisfying the residential shortage. This is in contrast to the long-term trend of increasing demand for storage, so we shouldn’t see a supply glut anytime soon.
