The real estate cycle does not follow the stock market cycle.  

There are times, of course, when the stocks of real estate-related firms will rise in concert with or decline as the rest of the market enters panic mode. But there have been just as many occasions in history where real estate marched to the beat of a different drummer.

In 2017, I believe the two will overlap – by which I mean we are most likely to see growth in corporate revenues and earnings, growth in workers’ wages, and an increase tax receipts, creating a fine economic revival. This would, of itself, be excellent for our selected real estate firms but in addition to the economic expansion, there are three other reasons I believe we’ll see an exceptional market for the real estate firms we find most undervalued.

The first of these are the Millennials, the largest demographic bulge now that we Boomers are dying off at an alarming rate due to some disease called old age. Many Millennials have been quite happy to stay at home, often in the rooms, they spent their childhood in, remodeled now to give them private access and a place for more of their stuff. Others have left that particular comfort and security behind but, like most of us when we are single, prefer to rent an apartment in urban areas where there are plenty of restaurants, bars, schools and easy and cheap public transit.

Here’s the thing. Even those of us who left home at 17 to make our way and the world and didn’t marry until 35, sooner or later, will frequently want to start a family. When that happens, even we want to find good schools, a house with a backyard where the kids can play and you can say yes when they beg for a puppy which they really believe they will take care of 100% of the time until they get it. When this transition happens in large numbers, people begin leaving their apartments behind and looking for single-family homes.

We no longer own any of the multi-family REITs we recommended a couple years ago. They still enjoy great occupancy numbers – and their stock prices reflect it. We’d rather buy the shares of companies that will benefit from the demographic trend just beginning as Millennials fall in love, marry and – gasp! – move to the close-in suburbs or, if financially successful, stay in town but move to a plot or townhome of their own.

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