Potential Homebuyers Say Not Yet. Is This A Good Sign For Rental REITs?

Lending giant Fannie Mae conducts a Consumer Mortgage Understanding Study to gauge Americans' understanding of the mortgage lending process. These studies were conducted in 2015 and 2018 before a break (likely caused by COVID-19) led to a delay until December 2023. The latest survey results reveal many would-be buyers are opting to sit out of the housing market due to worries about cost. Benzinga looks at what that could mean for Rental REITs.

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If there was one overarching message from the survey responses, it is that Americans still believe in the dream of homeownership and see its value. However, affordability concerns are keeping most of them on the sidelines. Survey respondents listed high mortgage rates, high home prices, and unfavorable conditions as their motivations for holding off on making home purchases.

Most respondents have become more pessimistic about the housing market since the last survey in 2018. Only 19% of survey respondents believe now is a good time to buy a house. That's a significant drop from the 62% who responded positively to that question in 2018. Considering that the survey found median household income had increased by 28% since 2018, it's safe to assume that the income increase hasn't kept pace with homeownership costs.

Much of that additional cost is related to today's mortgage rates. Fannie Mae's survey revealed that the rate for 30-year fixed mortgages has increased by 55% since 2018. This would also help explain why only 55% of survey respondents thought it would be "easy" or "somewhat easy" to get a mortgage. However, other survey responses show that Americans still want to become homeowners.

A full 92% of respondents said they think it's important to own a home. Another 74% of consumers say they have plans to buy a home with their next move, and 21% of renters are "working on preparing themselves for homeownership." That bodes well for the long-term future of homeownership in America. Still, it also represents a significant opportunity for residential REITs in both the multifamily and single-family home sectors.

It appears many survey respondents are trying to wait until interest rates drop, which could significantly improve their buying power. Until then, they will need places to live, which means they will be renting. That means rental REITs should have a steady base of tenants for at least the next several years. The key question, however, is where those tenants will be renting.

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Since the pandemic, there has been a noticeable population shift characterized by Americans leaving high-dollar markets in the Northeast and Pacific coast. Many are moving into the Sunbelt, with states like Arizona, Nevada, Texas, Florida, and Tennessee among the most popular destinations. This has led to a spike in home prices in some states, another factor that could benefit rental REITs.

As citizens move into new markets like Dallas, Houston, Orlando, Phoenix, Nashville, and Las Vegas, rental REITs are buying and building to keep up with demand. That creates a challenge for both investors and the REITs themselves. Estimating how many rental units to add without oversaturating a given market is not an exact science. It's made even more complicated by the fact that other REITs are adding units at the same time.

The key for rental REITs will be balancing the need to meet consumer demand and avoid overbuilding. The ones who walk that line most successfully will find themselves well-positioned to generate solid returns. As an investor, your challenge is different. You must carefully review the prospectus and long-term goals of any potential REIT offering, then assess whether it's the right investment. Remember, opportunity and risk go hand in hand.

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For instance, the Ascent Income Fund from EquityMultiple targets stable income from senior commercial real estate debt positions and has a historical distribution yield of 12.1% backed by real assets. With payment priority and flexible liquidity options, the Ascent Income Fund is a cornerstone investment vehicle for income-focused investors. First-time investors with EquityMultiple can now invest in the Ascent Income Fund with a reduced minimum of just $5,000.

Don't miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga's favorite high-yield offerings. 

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