The residential real estate investment trust-related exchange traded fund could continue to pay dividends, as rent prices rise and Americans are forced to push aside new home purchases.
The iShares Residential Real Estate Capped ETF (NYSEArca: REZ), which tracks residential, healthcare and self-storage real estate stocks, has increased 31.8% over the past year. REZ comes with a 2.89% 12-month yield.
Rental prices are are broadly increasing across the U.S., with overall rents up 3.3% as of January year-over-year rents are rising much more rapidly in some markets, according to a recent Zillow report.
New York City, San Francisco and Boston have typically been hot spot areas where rent prices typically shot up higher, but many other cities are now seeing rents grow more than double the national average. For instance, Denver’s rents surged 10.2% and Kansas City saw rents jump 8.5% year-over-year.
Nevertheless, rental appreciation is still below its peak 6.3% in September 2012.
Zillow warned that demand for rentals has driven up rent prices but wage growth and income have not kept pace. Consequently, Americans are expected to spend about 30% of income on rent, compared to th e historic average of 25%. Looking ahead, over half of surveyed housing experts expect rental affordability to remain an issue for at least two more years.
“Since 2000, rents have grown roughly twice as fast as wages, and you don’t have to be an economist to understand why that is hugely problematic,” said Zillow Chief Economist Dr. Stan Humphries. “More than one-third of Americans are renters, and today’s renters are tomorrow’s buyers. For many current renters, buying a home could mean both a lower and more stable monthly payment, but rising and increasingly unaffordable rents make it difficult to save for a down payment on a home.”
In January, first-time buyers only made up 28% of home buyers, CNBC reports. Loan data also revealed first-time homeowners have not been jumping into the market yet. [Homebuilder ETFs Could Have First-Time Buyer Problems]
“The rental market used to be and should remain a stepping-stone to homeownership,” Humphries added. “But given how widespread rental affordability problems have become, the rental market could be acting more like a barrier to buying. More supply will help ease the crunch, both from new construction and as current renters transition into homeownership, creating more vacancies in existing developments. But neither will happen overnight.”
iShares Residential Real Estate Capped ETF
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.