- Home ownership rate is at levels not seen since the mid 1990s and continues to trend lower.
- Residential vacancy rate is at 25 year lows.
- Multi-unit construction has fully recovered while single-unit construction is still significantly below pre great recession levels.
- Corporate profits from real estate renting and leasing are at 10 year highs.
- Sales of new and existing, single-family homes remain at very low levels.
This macroeconomic view provides the top-down perspective for our U.S. REIT investment strategy.
Research & Analysis
1) Home Ownership
It appears the housing crash in the mid 2000s and subsequent economic problems it created are enough to keep many U.S. residents from becoming homeowners. Those people still need places to live though…
2) Rental Vacancy Rates/New Home Construction
So, people are turning to renting instead of buying driving down the rental property vacancy rate.
The vacancy rate is falling even though new construction of multi-family homes has fully recovered from the great recession. This suggests demand is outstripping supply. At some point this will inequality will likely balance out (or even reverse) but until it does rental units should remain full and rental rates stable.
3) Real Estate Profits
Profits from real estate and rental and leasing have exploded over the last two years. Though the chart below reflects profits from the broader real estate sector, our speculation is that rental and leasing are the main contributors as new and existing home sales are still very weak (thus, real estate companies and single-family home builders profits’ are likely weak as well).
Medium-term Investment Strategy
- BUY/HOLD U.S. REITs with excellent cash flow and good balance sheets (lower debt to equity ratios).
Triggers for Strategy Change
- Supply of rental units begins to outstrip demand; increasing rental vacancies.
- Increases in home ownership rate.
Type: Investment Strategy Thesis
Sector: Real Estate
Sub-sector: Residential Renting & Leasing
Area(s) of Analysis: home ownership rates, rental vacancy rate, new home construction, homes sold