The apartment REITs faced some unexpected early-year challenges, namely a rough winter in the Northeast and Midwest that drove expense costs increases. But, overall, they continued to thrive.

“From an operating perspective, things are better than expected,” says Dave Bragg, managing director at Newport Beach, Calif.-based Green Street Advisors. “Most companies exceeded first quarter expectations.”

While Bragg says job growth has played a role, the tepid single-family sales market was a factor as well. Across apartment REIT World, gross turnover declined to 47 percent. That’s the third straight year of decline. Moveouts to single-family homes moved up from 13.7 to 13.8 percent, according to Green Street.

But the real news to some is that number didn’t jump higher.

“I suspect investors thought that as job growth improved, that would lead to wage growth and that would lead to increase in moveouts to homeownership,” says Paula Poskon, a senior research analyst with Robert W. Baird & Co. “But we’re not seeing that in any of these portfolios—not even in MAA.” (The Memphis’s based REIT’s portfolio is concentrated on the Sunbelt where low house prices make it susceptible to move outs to home ownership.)

In fact, some portfolios saw declines in moveouts to homeownership. In California, Palo Alto-based Essex Property Trust saw its moveouts drop for the third consecutive year.

“You’ve seen some markets re-accelerate, particularly the Bay Area,” says Rod Petrik, real estate research analyst at Baltimore-based Stifel Nicolaus and Co. “Those companies with exposure to the Bay Area have done well. Southern California is also a big gainer. After underperforming early in the recovery, it appears that Southern California has picked up and will be an out performer this year.”

Homeownership Threat?
While the spring selling season could increase those moveout numbers, Poskon and Petrik remain resolute that the results are a precursor of future strength in the rental market. In fact, both see the homeownership rate possibly falling to 55 percent.

“As rates go up and as GSE reform gets tackled, mortgages will cost more,” Poskon says.

Petrik thinks echo boomers, immigrants, and singles living alone will fuel rental demand. “The drivers of household formation—echo boomers, immigrants, and singles—have a much higher propensity to be renters,” he says.

Ultimately, Poskon sees a confluence of factors helping the rental industry, depending on the market. “I think there are some markets that, as long as job growth continues to grow, will go gangbusters, partially because some people don’t want to own,” she says. “If they do want to own, it’s hard to get a mortgage; and, partially because they’re priced out of homeownership still in places like Washington and San Francisco.”