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.[related_stories]
Moreover, more Americans have moved away from suburbs toward denser cities, which has made it difficult for builders to keep up with demand.
“And our choice right now is to continue to target those areas that are more land constrained, so it’s harder to bring things to market,” Kaminski added.
Along with the diminished desire for renters to turn into new homeowners, the residential REITs sector could continue to find support from renters as many face rising rents that could keep them from becoming buyers, especially if wages remain stagnant.
Rents in 2016 are expected to rise 3.3%, or down from last year’s 3.6% growth rate, Forbes reports.
iShares Residential Real Estate Capped ETF