Rising rents aid REITs

It’s a tough time for renters trying to make the leap to homeownership, and that bodes well for landlords.

U.S. home prices are rising at twice the rate of wages and the inventory of homes on the market remains low by historical standards. Borrowing costs are also rising, with the average rate on a 30-year mortgage at its highest level in more than seven years.

These factors, along with rising rents, are among the reasons many renters are staying put longer and delaying buying a home. That lower renter turnover rate is especially good

Renters wanted:

Sullivan expects that apartment demand will be strongest in the West and Sunbelt regions of the U.S. Two apartment REITs with a large footprint in those regions are Camden Property Trust and Essex Property Trust. news for real estate investment trusts that own apartment communities, BTIG analyst James Sullivan says in a recent research note.

With mortgage rates expected to continue climbing through the end of next year, that tenant turnover rate is likely to continue to decline, according to the BTIG report.

“Declining turnover rate is a tail wind for apartment demand,” Sullivan wrote. “We do not expect a material reversal of the lower homeownership trend over the next few years due to low single-family inventory, rising prices and higher borrowing costs.”