Rentals, Apartment Financing Rises Along with Single-Family Home Prices
Despite persistent talk of a real estate bubble, Florida housing costs don’t seem to be dwindling. Single-family home prices are on the rise; consequently, Merrill Lynch analyst Steve Sakwa believes that apartment REITs with core Southern portfolios should continue to outperform their peers.
“Many of the 19 markets [out of the 48 we track] that saw stable or rising single-family homes prices in the fourth quarter are located in the south, including markets such as Tampa, Orlando, Houston, Nashville and Raleigh,” says Sakwa.
In February, for example, existing home sales in the region were up 3.1% year-over-year, versus a 0.3% drop in the national rate. The median sales price of existing single-family homes was up by 11.7% in the Southeast, higher than the 10.6% gain for the entire nation. At the same time, with 30-year Florida home loans reaching 6.53% last month (the highest level since July 2002), more southerners may choose to rent rather than buy.
One Southeastern market where this scenario is playing out is in Fort Lauderdale, which in the first quarter moved up from ninth to first place percentage gains in effective rents among the 69 markets that Reis Inc. tracks. The beachfront city, one of south Florida’s hot real estate markets, saw effective rent gains of 2.8%. Not surprisingly, Palm Beach, Miami and Tampa locked in second, third and fourth place respectively. Palm Beach and Tampa also saw their apartment vacancies fall by 40 basis points.
Investors are paying attention. For example, small-cap apartment REIT Mid-America Apartment Communities (MAA), which owns a Southeastern portfolio concentrated in Florida, got a big boost last week when it guided analysts to a higher range for the first quarter by a nickel (to between 82 cents and 85 cents per share). It cited higher property revenues and increased occupancy rates, particularly in its Florida holdings.
As home prices surge and an affordable Florida home mortgage loan is harder to come by, apartment investors will try to take advantage of those turning to renting by hiking up their prices, as well.
