Undersupplied Housing Market Helps Boost This REIT ETF

A dearth in available homes across the U.S. is pushing up housing prices. Consequently, as more Americans keep renting, a residential real estate investment trust sector-related exchange traded fund has kept strengthening.

The iShares Residential Real Estate Capped ETF (NYSEArca: REZ) was up 1.1% Monday and gained 5.0% over the past month. REZ includes a 46.0% position in residential REITs and comes with a 3.33% 12-month yield.

In contrast with the last housing crisis when the market saw a glut in supply, we are currently seeing rising prices due to a deficit in available homes, reports Bob Bryan for Business Insider.

“Over the last three years, it’s kind of interesting, our first-time buyer mix has ranged right around 50% for the last three years, and if you put that in the context of how much our average selling price has lifted, I think it’s over $100,000 in that period,” Jeff Kaminski, CFO of KB Homes, the eighth-largest homebuilder in the U.S., said on the company’s quarterly earnings call. “It shows you how we’ve been able to flex and find a first-time buyer in these higher income more desirable sub-markets where they have an easier time getting the mortgage and underwriting is getting easier, but it’s not easy yet.”

Kaminski pointed out that first-time home-buying has been depressed for the past few years, attributing the falloff to credit or would-be homeowners shying away from debt. For instance, at KB Homes, the percentage of buyers making their first purchase has plunged to 50% from 60% to 70% in 2008 and 2009, respectively.

Kaminski noted that the price point for first-time buyers has increased to over $100,000, which reflects the environment where new housing starts are well below pre-crisis and historic recovery averages, so the dearth in new homes has helped push up prices.