Amid reports of an improving for-sale market, apartment REITs actually saw the number of renters who moved out to buy new homes drop 300 basis points to 15.2% (of total move outs) year-over-year in the fourth quarter of 2014, according to data from Newport Beach, Calif.,-based Green Street Advisors.
When single-family sales are strong, the REIT group as a whole can see as many as 20% of their move outs go to homeownership. Analysts asked REIT executives about recent Federal Housing Finance Agency and Federal Housing Administration moves to stimulate the entry-level market, but no one seemed especially worried that those moves would pull renters into single-family homes, says Conor Wagner, a senior associate at Green Street Advisors.
“No one made the big call that it [move outs to single family] was increasing or that they had shot up in quarter,” Wagner says.
If those renters do start to buy homes, Wagner has “more concern for the Sun Belt players versus urban guys.” One of those people affected would be MAA CEO Eric Bolton. Unlike many of its public peers, MAA owns in more suburban markets in the Southeast, which would seem to make it ripe to lose residents to homeownership. Of its move outs, 20% went to homeownership.
That said, Bolton says move out to buy houses in his portfolio aren’t a big concern right now. “We continue to not to be worried about mounting pressure from single-family,” he says.
While that 20% figure would be a high number for the sector as whole, it was a 100-basis point decline for MAA. The Memphis-based REIT had the second highest move-out-to-homeownership number in the space, next to Cleveland-based Associated Estates Corp, which saw 20.5% of its move outs leave for homeownership, according to Green Street. Essex Property Trust, with a portfolio entirely on the West Coast, saw the lowest move-out percentage at just 9.1%.
Keith Oden, president of Houston-based Camden Property Trust, another Southeastern-focused REIT, saw its move-out-to-homeownership percentage drop from 15.5% to 14.5% in 2014. That number usually hovers around 18% for the company.
“In terms of overall move-outs to home purchases, we have been surprised consistently over the last three years that, that metric has not moved back up more aggressively with an improving economy,” Oden says.
Oden pinpoints demographic factors. “Millennials are taking longer to get married,” he said. “They're taking longer to have children, which has historically been the triggering event for, in many cases, moving out of an apartment and buying your first home.”
Eventually more renters will leave to buy homes and some REITs will have to adjust. But that’s not entirely a bad thing either. Bolton thinks the jobs created from the single-family industry, particularly in the Southeast, can benefit his company.
“If you go back to the 2006, 2007 time frame, where arguably the single-family housing market was at a fairly robust level, we were generating some of the strongest rent growth we've ever generated in our 21-year history, with rents on average year-over-year going up 5% or so,” he says. “So we think that a vibrant housing market is a good thing.”
Bolton isn’t alone. Tim Naughton, Arlington, Va.,-based AvalonBay’s CEO, which saw its move outs to homeownership fall from 15.7% to 13.9% year over year, said on his earnings call that he had “mixed feelings” about single family housing.
“I think our general view is if it starts to heat up, it creates sort of crosswinds for our business in a sense that it typically contributes to economic growth as the single-family housing industry sort of kicks up,” he said.