With the housing market still in Davey Jones’ locker, apartment rent rates remain strong. Consumers are still willing to pay a “rental premium” – the added cost of renting vs. buying – simply to avoid the worry of home prices falling further or being locked into a long-term financial commitment. Flexibility, not homeownership, is the new “American Dream.”
The record demand for rental property has been a boon for the residential REIT sector. Here’s a chart of REZ, the iShares Residential REIT ETF.
You can see it has been moving higher since early 2009. Over the past three years REZ is up over 110%. The three year extended move up in REZ is mirrored in ten of the largest residential REITs, from Equity Residential to Post Properties.
These REITs have returned an average of 147% over the past three years. They’re within 7% of their 52-week highs, while REZ is also just 8% below its 52-week high. This is important to note because it shows that now is not the best time to buy these REITs. We could buy-in at better values during a significant pullback.
For now, watch for the residential REIT market to make further long-term gains as home buying stays out of favor.
If you haven’t done so already read the Survive & Prosper issue on “Housing Data Is Still in Davey Jones’ Locker”.