Spike in insider buying portends real estate gains

Fueled by high inflation figures along with low mortgage rates and supply chain constraints in the construction market that are slowing the construction of new homes, the cost of real estate has skyrocketed over the years. last two years. In the United States, the cost of housing rose 11% in 2020, marking a record that will almost certainly be broken in 2021, which is on track to record a 17% increase in the cost of housing.

Of course, it’s all over the country; some areas are experiencing much higher appreciation, such as Texas, which had seen house prices rise 24% year-over-year from the second quarter of 2021. The price increases were the most high in large cities, where the majority of labor growth is.

Are we in a real estate bubble?

With house prices rising so rapidly, some may be eagerly waiting for the bubble to burst and prices to collapse again, as they did during the 2008 financial crisis.

However, there are some reasons to believe that the real estate market may not be in a bubble after all. For example, wages are rising as the labor shortage forces many employers to pay better wages. The housing shortage also means more people are moving in with their families or moving further into the country, where housing is cheaper.

The theory that house prices are not in a bubble has recently received strong support from insiders. According to GuruFocus Insider Trends, which tracks the insider buy and sell ratio among S&P 500 stocks as well as individual sectors among S&P 500 stocks (such as real estate, energy, etc.), there has been a sharp increase in insider buying in real estate last month.

The overall insider buy-sell ratio for S&P 500 real estate stocks was 1.96 last month, the highest since March 2020 and the second highest since 2015.

Spike in insider buying portends real estate gains

The CEO’s buy-to-sell ratio for the industry was even higher at 5.00. This is the third highest reading in the past decade.

Spike in insider buying portends real estate gains

Spike in insider buying portends real estate gains

Finally, the real estate finance directors’ buy-to-sell ratio was 3.00. The last time the CFO’s buy-to-sell ratio exceeded this number was in 2008, at the height of the financial crisis:

Spike in insider buying portends real estate gains

Spike in insider buying portends real estate gains

A vote of confidence

When insiders buy stocks in their company, investors tend to be careful, as it could mean that the people who know the company best are expecting the stocks to post solid gains in the future. While insiders don’t always end up making timely calls, their vote of confidence is encouraging for investors.

What’s unusual about this buying spike is that it occurs when the S&P 500 hits record highs. In the past, insiders have generally jumped at buying opportunities after a massive sell-off, not when prices are higher than ever. The iShares US Real Estate ETF (IYR), which tracks real estate stock market indices, is up 31.47% year-to-date, beating the S&P 500’s wider 27.14% gain on the same period.

Spike in insider buying portends real estate gains

Spike in insider buying portends real estate gains

Now is definitely not the time to buy real estate stocks at bargain prices, but insiders seem to be betting on it. Only time will tell if they are correct in predicting that US house prices will continue to soar. Factors such as the highest inflation numbers in 30 years and supply constraints among home builders suggest they may turn out to be correct.

This article first appeared on GuruFocus.


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