Wall Street Thinks U.S. Homes Are Overpriced [View all]

House hunters don’t need to be told that property is too expensive right now. But Wall Street has an idea by just how much.

The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes INVH 0.23%increase; green up pointing triangle and American Homes 4 Rent AMH 0.06%increase; green up pointing triangle are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street. Invitation Homes’ stock has traded at a particularly large discount to NAV since interest rates began to rise in early 2022, but the gap has widened by 10 percentage points in the past year.

Put another way, while the average house in the metro areas where Invitation Homes owns its properties sells for $415,000 based on Green Street’s analysis of prevailing market values, the company’s share price implies that investors think $310,000 is more appropriate.

If a large and persistent gap opens up between the property values implied by publicly traded stocks and private markets, it can mean that a correction is on the way. In 2020, shareholders in listed office stocks priced in upheaval caused by the pandemic shift to remote working months before values started to tick down in private sales.

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