With more people renting than ever, investors can capitalize on the trend through residential real estate investment trusts and related exchange traded funds.
For instance, half of the holdings in iShares Residential Real Estate Capped ETF (NYSEArca: REZ) include residential REITs, such Equity Residential REIT (NYSE: EQR) 9.6%, along with positions in healthcare and self-storage real estate stocks.
Investors who would like broader exposure to the REITs space can take a look at the Vanguard REIT ETF (NYSEArca: VNQ) and SPDR Dow Jones REIT ETF (NYSEArca: RWR), which include a 16.8% and 18.3% position to residential REITs, respectively.
The national occupancy rate of rental apartments hit 95.3% in May, the highest on record, reports Diana Olick for CNBC.
“The May rate historically is the start of each year’s occupancy peak, meaning occupancy should remain at the current level or higher,” Stephanie McCleskey, Axiometrics’ vice president of research, said on CNBC.
With higher occupancy rates, supply is falling and rent prices are rising – May rents increased 5% nationally, the fourth straight month at or above 5%.
“Owners and investors are having a profitable start to the year,” McCleskey said.
For instance, REZ has outperformed the broader REITs ETFs, which suggests that the high occupancy rates and rents have helped support the sub-sector. Year-to-date, REZ rose 1.2% while VNQ dipped 1.4% and RWR fell 1.1%.
REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages. Consequently, revenue are mainly generated through rents or interest on mortgage loans.
Apartment demand has not let up, despite calls that improving economic conditions would push more into buying homes. Supporting the increased rental demand, millennials are finding jobs and moving out to cities.
Looking at home owners, homeownership rates are now at 63.7%, the lowest in 25 years, and Laurie Goodman, director of the housing finance policy center at the Urban Institute, argues that the rate could decline further further 2030. Meanwhile, rentals could continue to rise.
Moreover, without meaningful wage increases, renters may be stuck with rental apartments as they are not able to save enough for that first home down payment. [Renters Are Stuck, Continue to Support Residential REITs ETFs]
iShares Residential Real Estate Capped ETF
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.