Investors might wonder whether the real estate sector will see a demand boon soon. Leaning on the promise of a Federal Reserve interest rate cut by the end of the year, most of the market is on the edge of their seats, and they are getting ready to pour into property. The problem is that this time, it might not be enough to get new homebuyers on the playing field. So much more needs to be done, which is why mega investors have looked elsewhere.

According to the CME’s FedWatch tool, the Fed will likely cut interest rates by September 2024 in its next meeting. However, the markets have yet to recognize this as a bullish catalyst for some stocks in the homebuilding industry, such as Toll Brothers Inc. (NYSE: TOL) and even PulteGroup Inc. (NYSE: PHM), as their valuation multiples have fallen below the S&P 500 expectations.

Those at Blackstone Inc. (NYSE: BX), who focuses on real estate investments worldwide, have found a new—and better—set of opportunities in the multi-family corner of residential real estate, not the single-family property types that most homebuyers look to get after on lower mortgage rates. Another mega investor saw an opportunity in Mid-America Apartment Communities Inc. (NYSE: MAA), and there are two more honorable mentions aligned with Blackstone’s view.

Why Multi-Family and Apartment Investments Will Win in This New Cycle

When the COVID-19 pandemic hit its peak months in 2020, the Fed decided to cut interest rates to near zero to help the economy through lockdowns and business activity contractions. This also led to mortgage rates falling below 3% and sparking a massive wave of new homebuyers.

That level of demand drove prices higher, roughly 35% to 40% higher today compared to pre-COVID. Warren Buffett figured out that homebuilders like PulteGroup needed to ramp up production to inject new single-family and residential property to stabilize supply and prices.

While Buffett was right and made a killing on these homebuilding stocks, it didn’t work out just as he expected. Today, there’s both a supply problem and a demand problem, one which won’t make homes any more affordable for would-be homebuyers sitting on the sidelines.

Current homeowners with an average mortgage rate of 3.25% have little to no incentive to sell their homes, even when they have over 30% appreciation gains. As the home price-to-income ratios hit all-time highs today, only a few people can afford to buy new homes, even if mortgages come down on rate cuts.

This is going to end badly for homebuilding stocks, and markets are starting to show the cracks in the foundation. However, that’s also going to be an opportunity for apartments and multi-family units as more and more people start to rent as an alternative to not being able to buy.

Weakening Trends in Homebuilders, Strengthening Outlook for Apartment REITs

Goldman Sachs thinks that the S&P 500 will trade at a forward P/E ratio of 18.0x next year, so any stocks valued below this multiple present risk rather than opportunity. A market unwillingness to pay up for PulteGroup stock, which trades at 9.4x forward P/E, is a reason for concern.

The trend extends to Toll Brothers stock, which trades at 9.6x forward P/E, but the troubles don’t end there. Insider selling from company directors and the C-suite has been happening in these homebuilders as well. After all, why would they start building when there is no demand for single-family homes despite the tight supply?

Here’s the flipside: Blackstone’s real estate arm recently put out a presentation showing investors where most of their portfolios are. This mega investor has 52% of its portfolio in rental housing, most of which is scattered across the South and West of the United States.

To be specific, markets like Texas, Florida, and Nevada. Keeping these markets and regions in mind, investors can attempt to find other real estate investment trusts (REITs) that are exposed to these areas to tap into Blackstone’s idea.

Top Picks in Apartment REITs

Mid-America Apartment Communities

Mid-America Apartment Communities has drawn notable investor interest, highlighted by Stanley Druckenmiller's acquisition of 644,190 shares, signaling strong market confidence in its growth prospects.

This stock trades at 95% of its 52-week high and trades at an 18.0x forward P/E ratio to match Goldman’s S&P 500 multiple for 2025.

Knowing that this trend could accelerate soon, those at Bank of America have placed a $189 price target on this stock, daring it to rally by 15.3% from where it trades today.

Furthermore, the attractive 3.6% dividend yield offers investors a substantial buffer against inflation and a means to outpace GDP growth, making it an appealing option for those seeking both income and capital appreciation.

Camden Property Trust

According to its recent investor presentation, Camden Property Trust (NYSE: CPT) has most of its portfolio in apartment properties across Florida, Texas, Atlanta, and other parts of the West, giving investors a direct line to match Blackstone’s view today.

The stock’s short interest has declined by 17.6% over the past month, showing bear capitulation in the face of this larger trend.

Goldman Sachs analysts now see a price target of $139 a share for Camden stock.

To prove these targets right, the stock needs to rally by 9.7% from today’s price, which comes down to an 18.2x forward P/E valuation. This target is supported by robust demand in its key markets and Camden’s strong operational fundamentals.

Equity Residential

This REIT also holds most of its portfolio along the country's South and West. The strategic positioning of Equity Residential’s portfolio in the South and West aligns with high-growth areas that have seen rising demand for residential spaces, particularly in tech-centric cities.

Equity Residential (NYSE: EQR) now trades at a forward P/E of 18.2x and a new 52-week high as markets realize that this property portfolio is right on track with the leaders at Blackstone. The company’s consistent financial performance and strategic acquisitions continue to solidify its reputation among top-tier real estate investments.

An annual dividend yield of 3.5% is also an attractive proposition, on top of Goldman Sachs's valuation of this REIT at $81 a share, or 6.2% upside from where the stock trades today, not to mention a new yearly high.