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Home News Real Estate

Wall Street Signals 10-35% Housing Market Overvaluation as Institutional Buyers Retreat

by Team Lumida
January 16, 2025
in Real Estate
Reading Time: 3 mins read
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Photo by Avi Waxman on Unsplash

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Key Takeaways:

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• Major housing REITs trading at 20-35% discount to net asset value
• Institutional investors’ home purchases at 7-year low (excluding COVID period)
• Current cap rates around 4% vs. required 5-6% for institutional investment
• 10-15% price correction needed to attract institutional buyers back to market

What Happened?

Wall Street is signaling significant overvaluation in the U.S. housing market through public market pricing. Major single-family rental companies like Invitation Homes and American Homes 4 Rent are trading at substantial discounts to their net asset values, with Invitation Homes’ stock implying house values should be $310,000 rather than the current market average of $415,000 in their operating areas.

Why It Matters?

This valuation gap between public and private markets often precedes broader market corrections, as seen in the commercial real estate sector. The retreat of institutional investors, who now represent just 0.3% of home purchases, suggests current prices are unsustainable at prevailing interest rates. The disconnect between investor requirements (5-6% cap rates) and current market yields (4%) highlights the fundamental valuation challenge, even with institutional buyers’ advantageous borrowing rates.

What’s Next?

Without significant reductions in borrowing costs or substantial rent increases, a 10-15% price correction may be necessary to attract institutional investors back to the market. In the meantime, large investors are shifting strategies toward new construction and renovation projects, where better returns are possible. The market will likely see continued tension between investor valuations and owner-occupier priorities, with the lock-in effect of low legacy mortgages potentially supporting current valuations despite investor skepticism. Watch for signs of price adjustments in markets where institutional investors have historically been active.

Source
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018