Housing Data Show Strength: 3 Real Estate Funds to Buy Now
The U.S. Census Bureau and the Department of Housing and Urban Development reported upbeat data on new single-family home sales this week. Sales of new single-family houses increased 18.6% from April’s revised rate of 425,000 to a seasonally adjusted annual rate of 504,000 in May. New home sales for the month of May increased to the highest level in six years.
Home Sales Surge
The rise was also larger than expected as the consensus estimate predicted it would improve to 439,000. This data comes close on the heels of encouraging existing home sales data released on Monday. Existing home sales rose 4.9% to a seasonally adjusted annual rate of 4.89 million in May from an upwardly-revised 4.66 million in April.
Existing home sales increased at the fastest pace in seven months. A strong labor market, expansion in inventories and drop in mortgage rates were cited to be the reason behind strong growth in this metric.
Distressed Sales Decline
However, it is important to note that new home sales show great variance month over month. Again, a closer look at existing home sales data reveals that sales recorded in May are lower than the year-ago figure of 5.15 million.
But a more optimistic picture emerges when we look at distressed sales numbers. Foreclosures and short sales make up 11% of the sales in May. According to the National Association of Realtors, distressed sales have declined by seven percentage points over the past year. Existing home sales have increased 3% compared to May 2013 when we exclude distressed sales.
Prices Increase Falls
The S&P/Case-Shiller Home Price Indices report revealed that increase in home prices was slowing. The 10 and 20-city composite indexes moved up 1% and 1.1% respectively during April. However, annual increases have declined.
The 20-City composite index rose 10.8% year on year in April. However, the rate of growth was lower than March’s year-on-year rise of 12.4%. It was even lower compared to the 13.7% increase recorded in November last year.
A Sustainable Recovery
According to the chief economist of real estate site Trulia, just 3% of national home prices are undervalued when considering long-term fundamental factors. Some markets, such as South California are highly overvalued.
The Case-Shiller report is drawn from transactions concluded during the period between February and April. This makes it a good indicator of activity for the early part of the year. A decline in price increases implies that the housing market may be stabilizing.
3 Real Estate Funds to Buy Now
For investors interested in the real estate sector right now, we will suggest 3 top-ranked real estate funds. These funds have returned at least 10% year to date. Their expense ratio is below 1% and none of them carry sales load. Sales loads are one-time fees that investors pay either at the time of purchase or when units are redeemed.
These funds carry either Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) funds. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performances, but the likely future success of the fund.
JHFunds2 Real Estate Secs 1 (JIREX) seeks to provide long term growth of capital as well as current income. The fund invests a large proportion of its assets in equity securities issued by real estate investment trusts and companies. Not more than 10% of its assets may be invested in foreign firms.
JIREX carries a Zacks Mutual Fund Rank #1 (Strong Buy). The fund has returned 17.7% year to date. The fund carries an expense ratio of 0.79% as compared to category average of 1.32%.
VY Clarion Real Estate I (IVRIX) invests a lion’s share of its assets in US real estate investment trusts and real estate companies. The sub-adviser may decide against purchasing companies that have market capitalization below $100 million at the time of purchase.
IVRIX carries a Zacks Mutual Fund Rank #2 (Buy). The fund has returned 17.5% year to date. The fund carries an expense ratio of 0.61% as compared to category average of 1.32%.
JPMorgan Realty Income R5 (JRIRX) seeks investment return via current income and capital growth. The fund invests almost all its assets in equities of real estate investment trusts (REITs). The fund may invest in small-cap REITs as well. The fund may invest a maximum of 15% in illiquid holdings.
JRIRX carries a Zacks Mutual Fund Rank #2 (Buy). The fund has returned 17.1% year to date. The fund carries an expense ratio of 0.73% as compared to category average of 1.32%.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.
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