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Are Real Estate Stocks Immune to Markets’ Volatility?

Posted On Thursday, 31 March 2022 09:01
Are Real Estate Stocks Immune to Markets’ Volatility?

The global markets’ initial reaction to the beginning of the war between Russia and Ukraine has been close to panic. As soon as Russia started its military advance on the Ukrainian territory, markets tumbled. All major US indices retreated, with the tech-heavy Nasdaq index leading the retreat by skirting close to the bear market zone. When stocks are sliding during a military conflict, it is natural to ask whether one should trade in stocks. It seems that the wisest decision traders can make now is to pull their investments out of the stock market and wait until the war between Russia and Ukraine is over.  

However, running away from the stock market in these challenging times would be wrong. Not all stocks have been pulled down by the present geopolitical events. Such companies as EPAM Systems and Carnival Corp. that generate a large percentage of their revenue from Russia and Ukraine might indeed be negatively affected by the war between these countries. But other stocks such as property and real estate have been demonstrating enviable immunity to the military conflict in Eastern Europe. They have been rising while other shares have been dropping, and analysts say that their upward trend might continue regardless of how the war in Ukraine progresses.

The latest news from the stock market illustrates how resilient global real estate stocks prove to be in these difficult times. In the Asia-Pacific region, a recent Chinese state media report said that authorities would make an effort to stabilize the real estate sector. Buoyed by this supporting news, Chinese real estate stocks in Hong Kong jumped, with Country Garden adding 28.41%, China Evergrande Group surging 17.83%, and Sunac climbing a staggering 59.03%. While technology stock dipped, the Hang Seng Properties Index popped 9.46%.   

Despite the war and the influx of refugees from Ukraine, Israeli real estate stocks have also been on the rise. The housing price index showing prices growing at a monthly rate of 2.1% represents a peak not seen in Israel since 2011. Even before the beginning of the conflict between Russia and Ukraine, in 2021, prices of houses rocketed by 13%, which had not happened since 2010. Other figures, too, testify to strengthening the real estate industry in the holy land. The monthly transactions are 50% higher than the average ten years ago. The annual building starts have increased by almost 30%, and the size of mortgages has climbed by more than 60%.  Now, when more people are flocking to Israel and will need housing, the real estate shares might go even higher.  

In the United States, the real estate industry is well-positioned to weather the markets’ volatility caused by Russia’s attack on Ukraine and skyrocketing commodity prices. Analysts’ optimism is borne out by history. A look at the returns of real estate stocks throughout history shows that the real estate industry is directed correlated in the long run to neither raging wars nor interest rates.  Even though the number of homeless people is increasing across the United States, Americans are buying more homes than they used to. Thus, Latino families, on whom US homeownership growth largely depends, purchased 48.4% more homes in 2021 than in the past seven years. Experts say that this trendline will continue.

Real estate should, therefore, be considered for investments. Unlike other stocks, real estate stocks can help investors counter the stock markets’ volatility caused by Russian troops’ advance through the Ukrainian territory. Many companies in the industry, among which are EPR Properties (EPR) and Host Hotels & Resorts (HST), should be seen as promising candidates for investing in these unstable times. 

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