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Renter Nation vs Housing Recovery

28 May 2015 in Trading Ideas

Mortgage schmortgage. A shift from home ownership to renting could benefit companies involved with the rental market.

However, an economic recovery tempts buyers back to the housing market. Plenty of housing-related companies are putting out the welcome mat.

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PUTTING OUT THE WELCOME MAT FOR RENTERS

These days, home is increasingly where the rent check is. As many Americans continue to struggle with foreclosures, unemployment, and tightening budgets, home ownership is on the decline and rentals are up. As of June 2013, 65.1% of US households own their homes, down 3.0% over the previous five years.1 Meanwhile, the rental vacancy rate has declined by 1.8% over that same period, showing an increase in the number of renters.2

This motif includes REITs focused on developing, leasing, or operating rental properties. REITs must distribute at least 90% of their income as dividends3, and have averaged 4.5% dividend yield as of August 2013.4 Now that’s the kind of landlord we can appreciate.

 

HISTORIC BUST MAY LEAD TO BARGAINS

Be it ever so humble—well, they’ve never been quite this humble. Home prices have dropped about 30% from their 2006 peak.5 Massive existing supply, a huge inventory of foreclosed homes ready to come to market, stubborn high unemployment, rising food and gas prices, and the challenge of qualifying for a mortgage, have shaken consumer confidence and slowed any sustained turnaround.

But as the economy recovers, bargain prices and record-low interest rates can tempt consumers back into the market and help home prices begin to recover. This could benefit housing stocks, many of which are still down as much as 40% from their pre-crisis highs.6

 

STOCKS IN THE RENTER NATION MOTIF

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STOCKS IN THE HOUSING RECOVERY MOTIF

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(1) U.S. Bureau of the Census, “Current Population Survey/Housing Vacancy Survey, Series H-111 Reports,” Table 14 “Homeownership Rates for the US and Regions: 1965 to Present,” http://www.census.gov (accessed Jan 25, 2012)

(2) U.S. Bureau of the Census, “Current Population Survey/Housing Vacancy Survey, Series H-111 Reports,” Table 3 “Rental Vacancy Rates by Units in Structure: 1968 to Present,” http://www.census.gov/ (accessed Jan 25, 2012)

(3) A.D. Pruitt, “Mortgage REITs on a Tear As High Yields Fuel Demand,” The Wall Street Journal, Apr 13, 2011, http://online.wsj.com (accessed Jan 27, 2012)

(4) Gene Epstein, “Renter Nation,” Barron’s, http://online.barrons.com/article/SB50001424052970204078204575377403833112416.html?mod=BOL_archive_twm_ls#articleTabs_article%3D1, July 26, 2010, (accessed June 3, 2012).

 (5) “Home Prices Up, Best Yearly Increase Since 2006,” Reuters, March 26, 2013, http://www.cnbc.com/id/100591346, (accessed May 14, 2013).

(6) Google Finance, as of May 14, 2013.

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