Market Insights

The U.S. housing market has steadily gained strength for the last year. Today we wanted to profile two lesser-known-companies in the sector.

Invitation Homes (INVH) and American Homes 4 Rent (AMH) are unusual because they own single-family homes. They’re technically real-estate investment trusts (REITs). This makes them different from most other names in the industry, which either build houses or provide construction supplies.

INVH and AMH cite the tight inventory of single family homes in the U.S. market. Their executives also point to demographic trends of millennials ageing, leaving cities and working from home. Both are focused on generating funds from operations, or FFO. However, they may offer a different appeal to investors interested in U.S. housing. Consider these numbers:

• INVH owned about 79,000 houses at the end of September. Comparing the total to its $25 billion enterprise value, we see can derive an average value of about $314,500 per house.
• AMH has about 53,000 homes and an enterprise value of $13 billion. That translates into roughly $246,500 each.

Their properties aren’t necessarily comparable because they’re in different cities. However these calculations provide a sense of the underlying assets.

After all, the main story in housing now is price appreciation. The most recent Case-Shiller home price index rose 9.5 percent, the largest gain in over six years. Additionally, that number showed the change in November — even though it came out last week. (Case-Shiller is very slow compared to other data sets.) Given the strong demand lately, prices have likely continued to climb since.

Neither INVH nor AMH is included in the more widely known iShares U.S. Home Construction ETF (ITB). However investors looking to follow the trend of home-price appreciation may want to study these little-known stocks.

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