Rising Rents Could Boost These Residential REITs ETFs

Rent prices are rising as would-be home buyers are priced out of the housing market and forced back into rentals, strengthening residential real estate exchange traded funds. The asking rents for houses increased nearly 13% for the year-to-date that ended in July, the highest annual advance in five years as tracked by real-estate data company Yardi Matrix, the Wall Street Journal reports.

Source: Rising Rents Could Boost These Residential REITs ETFs

Additionally, apartment asking rents rose at a slower 8.3% rate for the year-to-date that ended in July, according to Yardi Matrix. The difference between apartment and housing rents partially reflects weaker demand in the city downtown areas that saw a population dip due to the COVID-19 pandemic, but those markets have somewhat rebounded in recent months with the vaccine rollouts.

Observers argued that the jump partially reflects higher demand from those who can’t afford to buy homes, along with city-dwellers who moved out to the suburbs during the pandemic.

Rentals continue to attract high demand as the heated competition in the housing market this year pushed for-sale home prices up by 23% on an annual basis last quarter.

The shortage of affordable housing has also been exacerbated by new buyers from Wall Street investors, who have purchased $87 billion in homes over the first half of 2021, according to real-estate company Redfin, including a record 68,000 houses in the second quarter. One in six home sales were acquired by an investor in the second quarter of 2021, according to Redfin, and in Atlanta, Phoenix, and Miami, the ratio was closer to one in four.

Furthermore, Doug Ressler, a researcher at Yardi, pointed out that new houses meant to be rented instead of sold made up for about 12% of single-family construction in 2021.

“The institutional players are chasing some of the same homes that would be starter homes for owner occupiers,” Desiree Fields, a geography professor at the University of California, Berkeley who researches the single-family rental industry, told the WSJ.

Investors who want a piece of the real estate action can access the space through funds like the Vanguard Real Estate ETF (VNQ A+). VNQ seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments. However, broad REITs sector-specific ETFs have low exposure to residential REITs, with VNQ’s underlying portfolio including a 14.9% tilt to residentials.

On the other hand, ETF investors who are interested in gaining exposure to this ongoing trend in the housing market can consider residential-heavy REIT ETFs, such as the iShares Residential Real Estate Capped ETF (REZ A) and NuShares Short-Term REIT ETF (NURE). NURE includes a hefty 49.7% tilt toward apartment- or rental-related REITs while REZ has a 51.1% weight in residential REITs.

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