LOS ANGELES — Stocks in companies that own apartment buildings are holding up better than most other real estate investment trusts, as a tough U.S. housing market keeps demand for rental housing healthy and tenant turnover low.
The FTSE NAREIT Equity REITs index, which includes owners of apartments, office, retail and other commercial property types, is down 2.9% through the first five months of this year.
The 14-company apartment segment of the index, meanwhile, had a total return of 5.2% in the same period. One of the nation’s largest apartment REITs, Virginia-based AvalonBay Communities, is up about 22% since last October. It owns and manages over 90,000 apartments across the U.S.
That performance trails only malls and health care property owners.
Still, apartments and REITs lag the S&P 500’s roughly 11.3% total return through the end of May.
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A shortage of homes for sale and rising mortgage rates have combined to dampen home sales this spring, traditionally the busiest stretch for the housing market. Sales of previously occupied U.S. homes fell in March and April.
The median U.S. home sale price has risen more than 40% since 2019 alone, making it challenging for renters to save for down payments.
The resilience in apartment REITs stocks is noteworthy because it comes as landlords have seen rents fall nationally for nearly a year.
The median U.S. asking rent fell on an annual basis in April for the ninth month in a row to $1,723, according to data from Realtor.com drawn from the nation’s 50 largest metropolitan areas. Despite the string of declines, April’s figure was just 1.9% below its 2022 peak.
The largest wave of new apartment construction in at least 50 years is helping to put downward pressure on rents, but with many tenants priced out of homeownership, turnover is down, keeping demand healthy.
Meanwhile, a strong job market has helped drive rents higher in many metro areas, especially in the Midwest.
The median asking rent in the Indianapolis metro area jumped 4.5% in April to $1,334, while in Minneapolis it rose 2.5% to $1,529. It jumped 3.8% to $1,671 in Milwaukee.
Investors may want to focus on companies with properties in the West Coast and Midwest, which are expected to be less affected by the…
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