Rent growth for apartments appears to have peaked in 2021, and that could boost some of the real estate stocks that were the early darlings of the swine flu epidemic.
Between June and July, national rents increased by 0.8%, one third the growth seen a year ago, according to RealPage. Rents increased by 12.2% in July compared to the same month last year.
There is a downturn in affordability. Rent growth has outpaced income growth for the past two decades, but the coronaviruses have caused a divide in coastal markets.
Rents were slashed in 2020 as people fled urban areas, only to return in 2021. The new renters are younger and tend to have less money, making it harder for landlords to make ends meet.
Incentives were offered by landlords in 2020 to get tenants in the door. Growth comparisons from 2021 to 2022 will be more difficult because of the removal of incentives in 2020.
RentCafe says that 420,000 new apartment units are expected to be completed this year. In 1972 completions reached 400,000. New York City is where most of the new inventory is located.
The shift creates an interesting opportunity for investors in apartment REITs, which have fallen off due to rising interest rates rather than fundamentals. High yield and low interest rates make REITs a good play for investors.
The pricey coastal markets could see further easing in rates, while the Sunbelt, which was cheaper to begin with, could see sustained higher rents.
Alexander Goldfarb said that the Sunbelt didn't have the Covid discounts.
The Sunbelt saw a boost in rent as a percentage of income.
Everyone says people are just willing to pay in the city, but what we found is that Sunbelt rents grew faster and rent as a percent of income increased. The people in the Sunbelt were willing to pay more. He said that the coast's were stagnant.
Camden Property Trust and Mid-America Apartment Communities are two real estate investment trusts that are more focused in the Sunbelt. He said the same thing about coastal REITs like AvalonBay, Equity Residential and UDR. The properties of Essex Property Trust are mostly in the suburbs.
Rents on single- family homes are not as high as they used to be. Rents grew at a slower rate in June compared to May.
Given that home sales are dropping so dramatically, strong rental demand for both single- and multi- family rentals is likely to stay strong. Some consumers have no choice but to rent because of the high mortgage rates and high home prices.
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