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he Zacks Real Estate – Development industry is poised for growth due to a recent interest rate cut, healthy demand for various real estate property types, and a slowdown in new deliveries. Companies like Howard Hughes Holdings Inc., Green Brick Partners, and Forestar Group are well-positioned for growth. However, macroeconomic uncertainty and geopolitical tensions may lead to supply-chain constraints and higher material expenses, keeping prices high.
The industry comprises companies that own, develop, and manage various real estate properties, including commercial, residential, and mixed-use parcels. Some developers undertake construction on their land holdings or retain properties for operations. Others engage in strategic activities like infrastructure improvement and land planning to boost economic development.
A recent interest rate cut has boosted buyer sentiment, encouraging the development of real estate as companies can borrow at lower costs. The elevated interest rate environment has slowed down new construction deliveries, particularly in the residential market, which is grappling with a shortage of new homes. Retail real estate is also experiencing supply shortages, maintaining favorable industry fundamentals.
Demand for certain asset classes like retail, industrial, and logistics, and office properties is witnessing healthy growth. This trend is expected to persist, supporting office real estate market fundamentals. However, macroeconomic uncertainty and geopolitical unrest have disrupted the supply chain, leading to subdued sales activity in the near future.
The Zacks Real Estate Development industry has a Zacks Industry Rank #87, indicating bright prospects. The group's earnings estimates have increased by 10.6% and 7.8% for 2024 and 2025, respectively, since April 2024. Analysts are gaining confidence in this group's earnings growth potential.
Three real estate development stocks to consider are Howard Hughes Holdings Inc., Green Brick Partners, Inc., and Forestar Group Inc. These companies have a strong presence in the market, with favorable demand for residential and commercial properties. They also have a significant footprint in high-growth markets, superior land reserves, and diverse product offerings.
Howard Hughes Holdings currently has a Zacks Rank #1 (Strong Buy) and is expected to benefit from the favorable demand in the residential and commercial real estate markets. Green Brick Partners enjoys several strategic advantages, including a significant footprint in the U.S. markets with considerable job growth and best demographics. Forestar Group is likely to benefit from the strong demand for residential lots, particularly at affordable price points.
The industry has underperformed the S&P 500 composite and the broader Finance sector over the past year, but its current valuation suggests it may be undervalued. The forward 12-month P/E ratio of 6.73X is lower than the S&P 500's 21.57X and the Finance sector's 16.2X.
