Skyrocketing home rental prices are making America’s largest single-family landlord a top performing stock.
Shares of Invitation Homes have soared more than 40% this year, which is double that of the S&P 500 Index of large US stocks. Rents across the country have jumped 11% in 2021 as of June, according to online marketplace Apartment List, pushing the cost of renting a house well ahead of pre-pandemic trends. As the cost of housing goes up, Dallas-based Invitation Homes, which owns more than 80,000 residences around the country, raised rents by 8% nationwide in the second quarter.
US housing market is setting records
The American housing market is red hot, from coast to coast: House prices jumped 16.6% in May from a year earlier, the second record increase in a row, according to the S&P CoreLogic Case-Shiller index. As house prices slip out of reach, that can push people back into the rental market, driving those prices higher as well, said Chris Salviati, senior housing economist at Apartment List. “If those folks remain on the rental market longer, then that adds tightness to the rental market,” he said.
There are a series of factors fueling the housing boom, from pandemic-induced demand for property with more rooms and space, to low interest rates, mountains of household savings, and a shortage new housing supply.
A massive demographic shift is also driving the bonanza, as Millennials queue up to buy and rent larger homes. There are nearly 90 million people in their 20s and 30s in the US, according to Invitation Homes. Many of them are looking to start families and buy or rent a house. “We expect this population surge to be heading our way for many years to come,” Dallas Tanner, co-founder and CEO Invitation Homes, said in an earnings call on July 29.
Rents are soaring as eviction moratorium ends
Rental prices are shooting higher even as the US moratorium on evictions expired during the weekend, threatening to push people out of their homes and into a market that is becoming less affordable. While Congress allocated tens of billions of dollars to rental assistance to prevent a crisis, that money has been slow to make its way through the system.
The uptick in rent prices at the same time the moratorium expired “increases the risk that folks who get evicted end up unhoused or end up in crowded housing situation, doubling up with friends or family,” Salviati said.
Invitation Homes says it has supported its customers during the past 16 months by offering flexible payments, waiving fees, helping them get rental assistance, and forgiving overdue balances. “We have consistently gone above and beyond” what the government has required of landlords, Tanner said during the earnings call.
Big investors like Invitation Homes can end up with the winning bids for the same starter homes that families are hoping to buy, which may tighten the market and drives prices higher, Salviati said. But the bigger issue in the US is a lack of new homes in many key cities. And in the meantime, the lack of available housing appears set to squeeze prices higher for the foreseeable future, which has lately made Invitation Homes a better stock market performer than the likes of Apple and Tesla.
“If we are looking at these really expensive markets, these are places that have been adding tons of jobs for decades and not building enough housing to keep pace with demand,” Salviati said. “That’s how we end up in this situation.”