← The Rent Roll with Jay Parsons
The Rent Roll with Jay Parsons
EP#84 Jesse Lederman | 4 Takeaways From Q1'26 SFR REITS' Earnings Calls
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Foreign welcome. It's episode number 84 of the rent Roll, your podcast on all things rental housing, apartments, single family rentals, and build to Rent. So last week we talked apartment REITs, big takeaways from their Q1 26 calls. This week it's SFR's turn. We've gone through the earnings calls of the two big SFR REITs, AMH and Invitation Homes, and we're going to summarize four big takeaways for you here today. And I'll tell you, this is not a business as usual quarter. It's not just the same, not by any stretch. There's some really interesting stuff this time, from regulation to spring leasing season stuff. So we'll get into all that. But before we jump in the details, I got to share with you some really tremendous and kind of sad irony. Sad for the renters who are impacted by this legislation that we're going to get into and we've heard so much about already. So let's before we get all these, I just want to just briefly kind of reset the table of what's happened here in 2026 so far. Okay, quick recap. And just, just bear in mind the irony. That's the how this as this plays out. Okay, so January 7th, President Trump tweets out that he wants to ban large investors from buying houses they rent out. Okay, Stock values drop. Drop. They fall for the SFR rates. March 12, the Senate passes the Road to Housing act, which in effect more or less bans or at least sharply limits investment groups of 350 plus homes from buying or building single family rental homes. Stock values drop again. So then, and really all throughout Q1, the two SFR REITs, they're taking advantage of the drop in stock prices by buying back their own stock at a now reduced price. And they're using capital, or at least some of the capital that likely otherwise would have gone to new construction of build to rent homes had the stock price been higher. Because for years the REITs have been doing exactly that. They sell older homes and they recycle or reinvest those proceeds into new construction. Well, some of that capital is suddenly going to buybacks instead of to new housing supply. And so then what happened? Well, their stock values have since both recovered to around the levels they were January 6th prior to the President's retweet. So pre tweet levels. And in fairness, they were still depressed before January 7th because of the challenges prior to that, the slowness in the SFR market, whatnot. So they're still trading at discount the net asset value. But obviously the policy factors further contributed to that. And again, the REITs took advantage. So they bought back stock and then they report in the Q1 earnings calls some positive spring leasing season trends and that investors responded by bringing those stock values back to where they were at the pre tweet levels. And so think about the irony of this. It's that they went to buybacks with now the impact being reduced housing supply. So it's already happened. Reduced housing supply from a policy that's not even yet signed into law. And it's a good reminder that sloppy list housing policy, that targeting quote, unquote Wall street inevitably hurts Americans most American families, most American renters. And it's not just the REITs, it's across the sector. There is less capital going into new housing construction precisely because of legislation that ostensibly is about creating more supply, yet in reality is doing the opposite, which directly hurts families who can't afford to buy or don't want to buy a house for whatever reason. We had a whole episode on this related to the pullback in BTR construction spend a few weeks ago. So totally crazy. So we'll dive more into this as well as into the encouraging spring leasing numbers and much more in today's episode. And later on we'll talk with Jesse Letterman, a REIT analyst tracking SFR for Zelman and and we'll get his take on all this stuff as well.
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So lots to cover.
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Let's jump in before we do a big shout out to our sponsors. First and foremost, a big thank you to jpi, a leading apartment developer with a stated purpose to transform, building, enhance communities and improve lives. And they're doing that now across an increasing number of markets, expanding to in the mid Atlantic and North Carolina and other states on the east coast, of course, already having a big presence in Texas and in Southern California, expanding up to places like Seattle and Phoenix as well. So check them out. Jpi.com Also, big thank you to Madera Residential. Check them out@maderaresidential.com and to Funnel, check them out. Funnel Leasing.com the sponsor of our interview portion of the podcast. All right, so as always, kick it off a little section we call here's a chart. And instead of charts, we're sharing four big takeaways from the SFR REIT earnings calls that just wrapped up. And let me get this one big disclaimer out of the way before we jump in.
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That's this.
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I'm not a cfa. I'm not your investment advisor. I'm not here to give you investment advice whatsoever. This is purely informational and I'm just sharing the four things I find most interesting. So here's a chart. Be sponsored by Authentic and if you're an owner, an asset manager or developer running multifamily, here's the truth about leasing in 2026. A couple of ILS accounts and cross fingers are not going to get you to stabilization. The properties that are winning are running a tight ship across paid search and social retargeting, email and SMS nurture. All coordinated with one accountable team. Authentic built that system. They call it Demandador and it's one platform, one partner, one monthly number that scales to your Velocity targets. Pod listeners get 50% off setup fees for a limited time. Head to auth ff.comd2d to see how it works. Now that's a mouthful. It's a U t h f ff.com d2d the number 2d 2d see how it works. So check that out. So here we go. Top four Takeaways Number one Federal legislation brings more uncertainty and less construction. So we heard words like uncertainty and murky to define the regulatory outlook today. And that's that's having a real impact on capital allocation decisions, namely through reduced construction, not just from the REITs, but from the broader SFR BTR market. We've talked about this previously. I mentioned this earlier how the Road to Housing act has frozen BTR construction. And I alluded to this earlier, but I just briefly restate this. We're talking about the Senate's Road to Housing act, which we jokingly call the Road to Less Housing act, because that's actually what it's really doing is reducing housing supply, specifically rental housing supply. And it's already doing that. And the legislation dramatically limits investors ability to buy or build single rental homes. That's legislation that is now with the House. The House is pushing back on the Senate bill, including the BTR ban, among other things. But that outlook remains murky, especially the President's latest social media post on Monday night calling on the House to pass the Senate bill as is. So we'll talk a little bit more about that in today's in the news segment. But that's the backdrop we're talking about. And when you have major legislation like this that's already cleared one chamber of Congress, well, it's obviously a total game changer for the REITs, and it's become the cloud that hangs over their businesses until and if these issues get fully resolved. In the meantime that uncertainty of the future policy framework, it just freezes up capital. So Dallas Tanner, the CEO of Imitation Homes, he said this, he said, quote, I think people understand that if you that that you want to create regulatory framework that provides clarity to capital. And I think over the last 90 days that has been a little murky and that's created some noise. That's certainly a little bit of an understatement. And Dallas also said freezing acquisitions of BTR and sfr so it's not just construction but also acquisitions. He said, quote, with a murky outlook the last 90 days of where the market is. I think Capital is being very cautious in terms of how to think about one off purchasing or anything like that. So Invitation Home is a scaled back. It's forward purchase agreements with home builders. Those are agreements to fund new homes from home builders that will be rented out once they're built. Now for home builders, that's given them some surety of revenue and allows them to build more homes than otherwise build. But Invitation is pulling back. They canceled some orders. 76 homes to be precise. And that's a relatively small number of course, but still a net cancellation. And they said their backlog of pre purchase agreements is down to 556 homes, which is down from a peak of almost 2700 homes a couple of years ago. Now to be fair, not all that's due to legislative risk. Some of that traces to softer fundamentals, higher cost of capital. But it was clear that regulatory risk is a real factor there as well. Imitations Chief Investment Officer Scott Eisen. He said they've quote dialed back on our acquisitions and forward commitments. We've really dialed up our dispositions. And then he said I think we're taking a cautious view of the market toward acquisitions at this point. And that could be again acquisitions of, of, of of homes from home builders. And that slowdown in BTR capital activity extends to Imitation's third party development business that he recently acquired, Resi Built. So if you don't remember, Resi Built builds build to rent homes for other investors and operators. And Scott said that while they're still bullish on Resi Built, the regulatory uncertainty has impacted new construction projects. He said, quote, unquote. Obviously some projects have put on hold until we have further clarity with the legislation in Washington. Invitation also hinted they're looking at other ways to maximize the value Resi Built. Even if the legislation goes through its current form, that could include building attached townhomes which would still be allowed under this policy, among other things. So but again, overall, the legislation is creating uncertainty and limiting supply. Now, at amh, they weren't quite as explicit in their language, being very careful with wording as you might expect. But they hinted that there's a similarly negative effect on BTR construction. AMH CEO Brian Smith said, quote, we have anticipated a reduced number of deliveries in 2026 relative to 2025. That's one benef. That's one of the benefits of owning a mass development program. You have the flexibility to flex up or flex down in response to current market conditions. In this case, some of the regulatory uncertainty and the cost of capital considerations have driven us to that particular output expectation for 26. As we go through and things get worked out in Washington, depending on the outcome, there may be a really nice opportunity that could provide a catalyst for the development program. But again, having that flexibility, putting the full stack in house is really important at this time. So what he's saying is that because AMH owns a development program, they can scale up or down pretty quickly the number of homes they're going to build. And Jesse Letterman, our podcast guest today, he's done some of that math and determined that both REITs have scaled back from their prior guidance on how much they're building. Not pulled back entirely. They're still doing some, but they do appear to be redirecting some of that capital to stock buybacks instead, which we'll talk about in a moment. So again, I want to be very clear, it's not just regulatory risk alone. There's other challenges. The cost of capital, softer market conditions, et cetera, higher rates. But when you factor in the uncertainty around the future viability of the development, like that takes a maybe into a no. It's a true killer because some of these other factors, some of these are headwinds, like the softer market conditions. That's a short term factor that is eventually going to go away. And you're building really for the future. The legislative risk is a permanent headwind or at least semi permanent. And that takes us to takeaway number two from the REIT earnings calls. REITs continue to sell older homes and now they're using proceeds to buy back stock. Okay, so with less capital going to new development, capital has to go somewhere, right? And it's going to stock buybacks. But first let's talk about where that capital is coming from. And it's coming from selling homes. And by the way, the REITs have been doing that for years. Even a public, public, public perception says otherwise. That's just the fact. And they're not. And not only are they selling homes, they're saying that despite all the headwinds, they're actually having a pretty smooth selling experience, better than expected. At least that's what they're saying. They're saying that the buyer demand off the MLS has been pretty resilient for the homes that they're putting on the market. Imitation has said they sold 483 homes in Q1, generating $206 million. And they said they sold them faster than expected and for higher pricing than expected, amounting to stabilize cap rates in the low fours. AMH is doing similar. They sold more than 700 homes for a total of about 200 million in net proceeds. And where are those proceeds going? Well, a lot of it went to new development in the past. Like we just mentioned, capital recycling. You sell older homes, you buy or build newer homes. But with stock prices are where they are, plus the heightened regulatory uncertainty, that of course has led and that led to the weaker stock prices, which in turn in Q1 of this year led to a lot more stock buybacks and that became the big story. So Jonathan Olson an invitation. He said that this strong momentum on dispositions enabled us to lean in confidently on share repurchases. And later he said we are ahead of where we expected to be from a Disposition perspective. And that has allowed us to lean in and be as aggressive as we were with share repurchases. That's pretty explicit. You know, more sale more. More dispositions equals not more new construction. It equals stock buybacks. And you can understand why. Imitations said they spent $500 million on stock buybacks for the past two quarters, which is what their board had authorized. And now the board's authorized another $500 million in buybacks going forward. And at AMH, again, they still active in development, but they've scaled that back while scaling up buybacks. CEO Brian Smith said we continue to remain active on share repurchases, taking a thoughtful and strategic approach to capital deployment. Over the past six months, we've repurchased approximately $360 million of common stock, which represents roughly 3% of total shares and units outstanding. And then Chris Lau at AMH said this. He said we continue to have a great opportunity as we think about leaning into dispositions, just as we did in 2025, to potentially free up additional layers of capital as we think about evaluating further repurchases to complement the strategic and long term value being created by our development program. So again, they're doing both. But in the Past that capital is almost entirely going into development. Now for some of you may listen to this, he's like, all right, this buybacks, it sounds like a lot of financial jargon, mumbo jumbo. I kind of get it in theory, just buying back your own stock. But what is that? You know, what does that really mean? How does it really impact things? So Jonathan Olson at invitation, he put it in plain English in a way that all of us can understand. He said, to put it in context, during the first quarter, our average sales price for homes they sold was $427,000 per home. We bought back our stock at an impri at an implied price of $270,000 per home. So that's how you create value. You're betting on when your stock is trading below the net asset value of your homes. That means that, that, that when you build or buy a home, it's effectively worth less in, in your stock and how REIT nesters are valuing it than it is if you were to sell the house. And so that's why they're buying back stock. It's just a greater value in buying back the stock and betting on yourselves and betting on driving up that value in the future. And I think when Jonathan puts it that way, it's a pretty compelling story. And again, while the federal regulatory landscape not the only factor, it certainly has contributed at least somewhat to these reduced values that incentivize capital to buy back stock instead of investing in the new housing. And it's a good reminder that the easy button always looks enticing, but rarely accomplishes its intended goal and always delivers unintended consequences. All right, takeaway number three from the earnings calls. After an extended lull, leasing heats up in spring as supply pressures moderate. Okay, so first some context here. Supply has put downward pressure on rent growth for sfr. Just as for apartments SFR operators, they've been competing with the surge of new BTR homes. Obviously all these homes were started long before there was all this regulatory risk on the headlines. And they're competing with apartment supply in some spots as well. Of course, again, we also have a lot of apartment supply in the market and then we also have this increase in so called access than all landlords. These are individuals who in a normal market would have sold their homes, but instead are choosing to rent it out for various reasons. And that's putting new listings on the market, which means more competition. All those factors have weakened SFR fundamentals significantly to the point that John Burns data shows that new lease rent growth for SFR is the lowest levels in 10 plus years. And we've seen that softness impact the REITs as well.
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They've, they've, it's, it's that, that that
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softness extended through much of Q1 still seeing negative new lease rent change. But then it did start to turn when the leasing season started. The weather warms up. The leasing season improves in March and into April. And when we talked about the stocks earlier, I think some of the reaction was due to that though. We'll talk to Jesse about that then a little bit later. He would know more than me. But let's talk about the supply picture first and then get into leasing. So Lincoln Palmer at amh, he said this. He said we do see supply generally improving most of our markets. You note a couple exceptions in Arizona and Texas having more supply to work through. But then he added, we're also seeing great signs of life in many of our markets. You can see that some of the improvement this season, almost all our markets are running north of 95% occupancy with continued incremental improvements into the season. And then Tim Loebner at invitation said that supply is still a headwind across much of the Sun Belt, but they're seeing real improvements there while also seeing better conditions on the west coast and the Midwest. And then he said new lease rent growth reflected elevated supply conditions that continue to weigh on pricing in a number of markets during the quarter. But the picture improved considerably in April. All right, so that takes us to a leasing story. And again, to be clear, I kind of glossed over this earlier, but I do want to point this out because it is important. Q1 Overall rent and occupancy were still softer than a typical Q1, softer than they were last year in Q1. And I believe it's also taking longer to backfill some of these vacant units. New lease rents were still negative. As I mentioned earlier in Q1 renewal. Rent growth has moderated a bit too. Talk about that a little more in a minute. And that's continued the story from the second half of last year. So I don't want to ignore that. But, and obviously I'm not ignoring, I'm pointing it out and it's important. But the new news, so to speak, is the positive signs emerging in the spring. And housing is a business where the spring in the summer, that's the busy season. That's all the action is. That's when the most leasing occurs. That's when most move outs occurs too. That's when people move and whether it's a move out move in both. Right. So it's notable to see some positive news here for the spring. And both REITs reported that new lease rents did turn positive again in April. That's a material change. That's notable. Tim, an invitation. He said the the preliminary trends are encouraging. Average Occupancy accelerated to 97.1%, up 80 basis points from the first quarter. Renewal rent growth was in the low 3% range and new lease rent growth returned to positive territory just under 0.5% or a 230 basis point acceleration from March. That's a pretty good acceleration. And he said together this brought April blended rent growth of 2.3%. We are seeing a strong market out there. We believe that May will look a lot like April and so to call it a strong market. That's a notable shift from what we heard from much of the past six or nine months and particularly encouraging given all the heightened uncertainty in the economy, low consumer confidence, shaky job market for hirings, et cetera. And it obviously wasn't just invitation. AMH made similar comments. Brian Smith said at amh, seasonal demand picked up as expected in the back half of the first quarter despite a slightly later start this year. This resulted in, hear this, this resulted in record leasing volumes for March and continued momentum through April. The recent occupancy and new lease spreads trajectories put us in a good position as we move through the remainder of the peak leasing season. So AMH soon defined exactly what they meant by record leasing in March. And I wish one of the analysts had asked that, like what does that mean record leasing? But they didn't ask that. But Lincoln Palmer, he did say later in the call that spring leasing was up 15% year over year compared to the same time last year. So that's, that's certainly a material pickup. And Brian later added this, he said for April, the leasing momentum for March continued, further improving new lease spreads to 1.2% and same same home average occupied days 95.6% representing a 30 basis point sequential improvement. And later on, Chris Lau also added that after a slower start to January and February, leasing season now fully underway with healthy demand and strong activity. So again, strong activity, record leasing, strong market, those are all very upbeat terms and you might expect that from the REITs. You expect them to kind of say those things, but these are stronger terms they had been using in the past few quarters. And, and let me also say this, I know whenever we talk about SFR demand, some people try to correlate it and explain it with whatever's happening in the home buyer market. But it's really not that simple because the home buyer market was obviously soft all of last year and yet so was SFR leasing. And so it's, you know, when you talk about SFR versus home buyers, like it's generally a rising tide boost all ships story and vice versa as well. And I've talked about that a lot on this podcast, so I don't want to repeat myself, but obviously again, the two are more correlated than they are competitive. And also just want to remind folks that we're talking about new lease demand right now, not renewals. So these are net additions to the SFR market. Now, obviously there's fewer move outs than normal to purchase. That impacts the renewal side. That's not the new story. That's not a new story. I should say that's been going on for a couple of years, if not longer. So again, it's that, that pickup in the new lease side, particularly if AMH is saying 15% above last year, that's notable. But we'll see what happens through May and into the summer. Because you never want to make too much of a couple of months. A trend like has to really persist. We saw it in apartments last year. They got off to a strong start early spring and then it really tapered off. So we need to see if that momentum will be maintained. All right, that's going to take us to trend number four, our fourth and final takeaway. Turnover's picking up modestly and renewal Rent group has cooled a bit. All right, so again, spring numbers do look encouraging. As mentioned earlier, we're not just going to ignore Q1 entirely though. Okay, for Q1, both REITs reported a mild increase in turnover. Not enough to make a big deal out of necessarily, but still worth noting. And I say that because at some point this had to happen. And so I can't say I'm totally shocked because turnover across all rental housing has been trending down, down, down for a number of years now. And we knew eventually it has to flatten out or tick back up because turnover can't go to zero. There's always going to be some turnover. And I've been saying the same thing about apartment turnover rates. Eventually it has to up and normalize a bit. I said it would happen going in 25. That didn't happen. I was wrong. I said the same in 20, going in 26, because hey, why not double down? We'll see. But it appears to be happening here in The SFR market, it's not yet happen with apartments but eventually it will. So AMH said Turnover picked up about 50bps in Q1 compared to the same time last year. Still very low though Invitations saw similar the airport turnover a little bit differently. They show an annualized rate and they said turnover went from 20% to 21.4% or put another way that means 78.6% of renters are still renewing leases which is still quite high. So but again with a little bit of pullback in retention rates, renewal rent growth has cooled a bit now in the low threes, low to mid threes or I should say 3% range. I think 3 to 3.7% for both REITs which is still normal range but that's cooled from where it had been a couple of years ago which I think was in the 5% range. So that wasn't that long ago. Now when those numbers got reported, the analysts asked both REITs about these this pickup and move outs and whether any of that's tracing to an increase in move outs to purchase. And that story really hasn't changed much at all. Both REITs said move outs to purchase remain pretty consistent from where they have been. And in Dallas Tanner invitation he noted that most move outs are for life changes like job relocations, etc. Now so you may also be listening think, well it's probably an affordability issue then. But you know, I think if you just dig deeper like that seems unlikely because both REITs cater to generally six figure income households spending around 20% or less of income on rent. And both REITs have also reported positive trends around bad debt or rent collection, meaning renters are paying the rent and that's a good sign of affordability. So nor was anything shared about increased move outs due to job loss or anything like that. So for now I'd guess the pickup and turnover is some normalization or some noise, particularly since the movements aren't all that big and because they're also paired with increased momentum on the new lease side in the early part of the spring leasing season. So maybe just a little more normal movement happening. But we'll see what future quarters hold before we draw any firm conclusions. All right, that wraps up our four
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key takeaways from the apartment reads.
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We'll have a newsletter out on this as well@JayParsons.com Newsletter if you want to dive a little bit deeper. But next it's time for some rental housing trivia. All right, today's trivia is presented by Foxen which provides a suite of value add solutions designed to improve operations compliance and property performance. Rethink renters insurance compliance, Rent reporting and pet management with Foxen. Check them out@foxen.com that's f o x e n.com all right, our question today. According to John Burns Research and Consulting, there are four five major metros where it's cheaper to own than rent. A single family home in terms of monthly payments, which I'm going to give you six MSAs, which is not one of the five or cheaper to own than rent Cleveland, Detroit, Kansas City, New Orleans, Pittsburgh or St. Louis. So which one does not belong? Which one? Is it still cheaper to rent than own. And by the way, in most of the US it's still far cheaper to rent than own. But there are a few exceptions, those five major metros being among them. Which one is not though? Next up, Good question. All right, good question was when when we typically answer a question from that I get from email or from social media from an event that I do. But this time we're going to take a question that came from our re earnings call and this segment is going to be sponsored by friends at Inside the Deal, a CRE podcast by Bercadia, a commercial real estate podcast that takes you beyond the headline into the heart of the transaction. Hosted by Berkadia's EVP of and head of production Ernie Catay, each episode pulled back to curtain on a real deal, unpacking the situation, the challenges, the creative solutions and the outcomes achieved. You'll hear directly from Bercadia producers as they share what happened behind the scenes, the roadblocks they hit and how they navigate the market and the strategies that ultimately got them across the finish line. So if you work in CRE or just want to understand how complex deals actually get done, this is where you'll find the stories, the lessons and perspectives you won't see in a press release. So follow Inside the Deal, a Siri podcast by Brickadia wherever you get your podcasts. Okay, so good question. This one comes this week from the AMH earnings call. Brad Heffern at RBC Capital Markets, he asked this to AMH CEO Brian Smith. He asked it feels like the regulatory uncertainty is having an impact on future supply. But when do you think we'll start to notice that in the fundamentals? And then what? And then do you think that's something that's likely to stick around sort of regardless of what happens? Or I'm sorry, regardless of what, what the regulatory outcome is? And then Brian Smith, he Had a good answer. He said it's definitely has impacted supply. It's been widely discussed as the effect of the headlines that we've seen this year on capital coming into the space. So I think it will probably have a more immediate impact on the build to rent projects. I believe a lot of that were in flight, A lot of what was already in flight will get completed. But it's changed people's outlook. And then he goes on to say putting that in the context of already improving supply profile puts us in a good position as we get through this year and into the next. And so obviously he's, he's saying he's being very, very, very careful in his words. But what he's basically saying, and if I could translate this is that well, the legislation is a bad thing for the construction business and for renters want supply, it could expedite a rent rebound from the higher supply era into a lower supply era which could then boost rents. And what he's saying there is that the supply picture is already improving because there's less going on to begin with. And now we have this regulatory factor that could further reduce btr. That means less competitive supply in the future, which means more pricing power which is going to happen anytime you have reduced supply. So good question from Brad. Good answer from Brian. Next up in the news, In the news presented by Grotto AI, real time call and tour coaching for multi family leasing. Grotto records every call and tour identifies what sets your best agents apart. Then through real time guidance helps you scale that to your entire organization. So it's turn by turn navigation for the UN moments in the prospect journey. It's 360 visibility into every tour and call NMAC top 50 owner Widener Apartment Homes. They saw an 80% increase in call to tour conversion and ramped agents from bottom to top performers in two weeks using Grotto. So learn how Grotto can help your team increase leasing conversion at Grotto AI. And for a limited time, listeners of the rent roll can get a Grotto free leasing diagnostic. Grotto will analyze your existing data, show how your top performers convert more leads and identify opportunities to drive conversion across your portfolio. So head to Grotto AI to book a call now. All right, three headlines touched on this week. First one from Politico. It says Trump's Trump calls on Congress to pass Senate's housing bill. The President had previously stayed out of a cross chamber dispute over housing affordability legislation. All right, so previously Politico had reported that Trump was going to pull support for the Road to Housing act from the Senate and because of the inclusion of the build to rent ban or limits on build to rent construction. Well, apparently there was a change of heart. He then posted on Monday on Truth Social, he said Senators Bernie Moreno and Tim Scott have worked to ensure my call becomes a reality and have a bill that has passed the senate with nearly 90 votes. I am asking Congress to pass the bill, the 21st century road housing act, which would ensure the homes are for people, not corporations. Now it's curious that you know, not to get too political here, but this bill by all accounts was written by Senator Elizabeth Warren's office. I shouldn't say that the provision specific to SFR and BTR or by all accounts written by Senator Elizabeth Warren's office. But Trump did not give her the credit for this. He instead credits to Republican senators. And then the House though continues to take a different view. I mentioned some of this earlier, so I'm not going to be too repetitive, but I do want to share a statement they gave Politico. This comes from a spokesperson for the House Financial Services Committee. It says we remain committed to advancing a bicameral housing builder reflects the views of both chambers of to President Trump's desk. All right, so they're clearly saying, hey, we appreciate you President Trump, but we're not just going to sign the Senate's bill. We want to have our own. We want to have our own priorities put into this as well. And so other reporting this week indicates that the House still prefers its own bill. They're willing to work with the Senate. There's a lot to this. It's not just about the SFR and BTR investor ban. It is one of the issues though. And we know the House leadership is much less enthused about the SFR BTR bans than the Senate is, particularly around the build to rent stuff and the ban on building single flame rental homes or the effective ban. Without getting all the details of this, I've covered this previously, but effectively bans most SFR construction and BTR construction. So I still think that sort of gets worked out where BTR is carved out and some version of the ban on individual home purchases goes through. But who knows, you know, I mean a real wild card here could be a forced vote on the Senate bill within the House and you could maybe get enough of the anti fact populous itching to push the easy button and maybe that musters together enough votes to pass it. But we'll see. I mean it's very, very hard to predict the winds of D.C. politics. All right, next up, this is kind of a fun story from the Wall Street Journal. It says the latest hero of the Yimby movement is a Massachusetts man in a hoodie. One wealthy Massachusetts town's housing plan won't add much housing, and a local called them out. So this is a great story of a guy who went viral on social media in the last couple of weeks. Some are calling him a Yimby folk legend, the legend of Marblehead, Massachusetts. So the short story is this. The town of Marblehead had to do some rezoning to comply with state law allowing more land for multifamily development, but they skirted the requirement by zoning a local golf course for multifamily development. And so they had to find some land to zone for apartments. And they said, oh, let's just take this golf course, this country club, and we'll make that, you know, permit multifamily development there, as if anybody's gonna build in the golf course. And effectively, that really just means that no moss panel is going to get going to get built at all, because the golf course wasn't for sale and was going to get redeveloped, at least not anytime, first in the foreseeable future. So this rather unassuming would be hero by the name of David Modica, I think it is. If I mispronounce your name, David, I doubt you're listening. If you are. If I mispronounce it, I'm sorry. So he shows up looking rather disheveled. There's a picture of him in the Wall Street Journal.
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And I speak at the microphone at
- [35:25]
A
a town council meeting in front of the town council, and he says.
- [35:29]
B
He's talking about the golf club, and he says, tedesco.
- [35:31]
A
That's like a golf course. Yeah. Are we trying to do nothing? Because it seems like we're doing nothing. Are we kind of being pricks? So the video of his comments explode
- [35:43]
B
on social media, and even the Wall
- [35:45]
A
Street Journal picks it up. So amazing. And hey, apartment developers, if you need to find this guy, I'm sorry, if you're working on development and trying to get zoning changed, you need to find
- [35:55]
B
this guy, because I think he's.
- [35:58]
A
He's a good voice to have along with you. All right, last headline.
- [36:02]
B
Real quickly.
- [36:04]
A
The shelter. I'm sorry, the inflation numbers came out this week. And, you know, I've talked about some of the shelter inflation numbers in the past, and once again, we have another crazy one here. It shows a rather bizarre, or really a very bizarre spike in rents from March To April. It was the biggest acceleration in year over year CPI rent since February 2023. Now obviously it did not happen in real life. None of the private sector data providers are showing anything like that. But, but there's a reason it showed up in the cpi and it traces back to the antiquated methodology the CPI uses, which is a survey of renters, about 7,000amonth. And they only survey the same renters every six months. Well, six months ago from April was October. In October was during the federal government shutdown. So there was no data collected for October. And now that creates this weird one time blip six months later. And so you can disregard the April data on CPI shelter and rents and owners equivalent rents. It's junk. And by the way, even though this blip is from October, the CPI methodology is such that it impacts even the month or month numbers from March to April. And so we saw this huge pop just from March to April, which is obviously nonsensical. And so, but purely due to this, you know, antiquated methodology. So anyway, just sharing that tidbit in case you saw the data and wondering what's going on. All right, next up, it's time for some good news. Our good news segment sponsored by my friends at Apartment Life. Apartment Life coordinators help apartment owners care for residents by connecting them in meaningful relationships. This in turn benefits everybody from the residents well being to the satisfaction of on site staff and the apartment community's bottom line. So if you own or operate apartments and aren't already partnering with Apartment Life, check them out@apartmentlife.org it's a faith based nonprofit that's been around for nearly three decades. This week's good news comes from Dominium, the affordable housing developer and operator. And we've had Dominium on this podcast. Well, through their opportunities Front door scholarship program, they award up to 400 scholarships each year to help remove financial barriers to education for their residents. And there's one particular story that brings that impact to life. So there's one woman, we'll call her Melanie. She a single mom of two children with special needs. And she's faced some real challenges in life. And she had some big challenges she had to escape from and has worked hard to rebuild her life. And so as she moved into this Dominion community in Austin, Texas with her two children with special needs, it became a turning point in her life. And through Dominion's scholarship program, Melanie received support not once, but four times and went on to earn her associate's degree and then graduated summa cum laude with her bachelor's degree. And today she's working as a peer support specialist, helping others navigate the same kind of challenges that she once faced. And that's the power of pairing housing with intentional generosity. And I love this story because not only did Dominion help her in her life, but now she's doing the same to help others as well. Love it, love it, love it. If you have good news story to share, email them to infoayparsons.com and we may future feature it on a future podcast. All right, let's get back to our trivia of the week. The question was, according to John Byrne's data, there are five major metros where it's cheaper to own than rent a single family home, which is not one of them. Cleveland, Detroit, Kansas City, New Orleans, Pittsburgh, or St. Louis. The one that does not belong is Kansas City. So it's still not terrible there. By the way, it's below the US average, but it costs an average $344 more per month to own a single family home than to rent one in Kansas City. Next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelle leasing.com all right, our guest today tracks the the SFR REITs for Zelman Jesse Letterman. So we're going to get Jesse's take on what's going on with sfr, the impact of all the regulatory headwinds, as well as spring leasing discounts to nav, stock values, buybacks, and much more. Here's my conversation with Jesse.
- [40:41]
B
All right, welcome to the interview portion of today's podcast. And I am honored to welcome in Jesse Letterman from Zelman. So, Jesse, thanks so much for being with us today.
- [40:50]
C
Thanks for having me, Jay. I'm a big fan of your work. I've been following your podcast and I follow a long line of industry folks who I greatly respect who've already been on. So it's a pleasure to be here.
- [41:02]
B
Well, the honor is all mine. So you know the drill. And I've wrapped up people on especially in the REIT research world. Anybody in research, I always like to know the origin story. So tell us how you got into REIT research.
- [41:15]
C
Sure. Well, I've always been fascinated by the housing market. Earlier in my career, I worked in in private equity. I was focused on transportation and logistics, which was an awesome experience, but I found myself increasingly drawn to real estate and housing specifically. So when the opportunity came up to join Zelman, it just felt like the right move. I really wanted to study housing from the ground up. So I joined almost six years ago right in the middle of COVID which was, to say the least, a really interesting time to one, start a new job but also start covering housing, which is probably just an understatement at this point. My first couple of years were focused on homebuilders, so we covered 15 public builders. Gave me a really strong foundation on supply, demand, affordability, land, and just the broader housing cycle. From there, I eventually took over our single family rental coverage. So the path wasn't perfectly linear, but in hindsight, I think it made a lot of sense. I went from analyzing logistics and the movement, movement of goods to studying one of the most important and emotional asset classes out there where people live. And so single family rental really sits at the intersection of housing, consumer behavior, affordability, institutional capital, all of which really makes it an interesting space to cover.
- [42:29]
B
Well, and of course, it's so widely misunderstood by everybody, which makes it more fun, right?
- [42:33]
C
Absolutely.
- [42:35]
B
Speaking of which, it goes without saying the big headwind for the SFR REITs of late has been the regulatory front. We have the Road to Housing act, of course, nationally, of course. We also have a lot more local and state pressures as well. And obviously, you know, it's hard to predict where these specific policies are going to go. And even as we were preparing for this, we had a little curveball thrown with the president throwing support back to Road to Housing after previously suggesting he wouldn't. So I know we can't just. Who knows what's going to happen there? But just zooming out a little bit, I want to ask you, how do these increased regulatory pressures on SFR impact how REIT investors view the two big SFR REITs?
- [43:18]
C
It's a great question, Jay. So I think that regulation's now something that REIT investors on the SFR side are going to have to permanently underwrite.
- [43:28]
A
For.
- [43:29]
C
For a long time, national regulatory risk was mostly viewed as a headline risk, and it came up in conversations here and there, but it wasn't really dictating how people modeled the sector and thought about the sector long term. And I think that's definitely changed. So investors really now have to underwrite the possibility that single family home ownership can become a policy variable. I think the important point to keep in mind in all the context in this, and you know, this, Jay, is the single family REITS have not been buying a lot of existing home off the mls. And that's been true for several years. I mean their growth has largely come from forward purchase agreements with builders, opportunistic purchases from builder inventory. Those are the two kind of buckets that Invitation Homes has been leaning on for the most part here. And the last one is internal development, which of course is kind of AMH bread and butter. So when legislation starts to touch not only scattered site acquisitions but also newly built rental homes, that becomes much more relevant to their actual growth model. And so, you know, before last night, like you said, Trump supported the Senate's version of the housing bill. We didn't really expect the seven year disposition requirement specifically to end up in the final regulation. And there was pushback because the provision runs counter to the broader goal of increasing housing supply. I mean, I don't want to give too long winded of an answer here, but I want to give you some, some additional stats here. Consider in 2025, built for rent starts were roughly 7% of total single total single family housing starts in this country. And that largely understates the number of new homes that end up in the rental stock. So the seven year disposition requirement would likely result in a pretty significant pullback in that overall construction activity at a time when Bill Pulte and the administration and others are trying to stimulate more construction from the public builders. So to us it doesn't make that much sense.
- [45:20]
B
Yeah, well, and I think too, I mean obviously you and I are on
- [45:22]
A
the same page here.
- [45:23]
B
But for those listening, you know, it's important to emphasize that AMH as an example you mentioned they have their own in house development team. Invitation acquired, Resi Built. Neither one of these companies is going to be building for sale homes. That's just regardless of what the policy is. That's not in their DNA. They're building rental homes. So let's talk a little about construction. Jesse. Obviously as you mentioned, they've both been emphasizing construction in recent years. AMH having its in house development, Invitation acquiring RESI Built and previously doing forward
- [45:54]
A
purchase agreements with what's still doing agreements with builders.
- [45:58]
B
I noted in the last earnings call that Invitation said they put some projects on hold. They're dialing back acquisitions of, of particularly of of of new homes and doing more dispositions of existing homes. AMH is a little more, at least as I read it, a little more vague, but suggested they're kind of flexing down a little bit in terms of
- [46:19]
A
how much they're going to start.
- [46:21]
B
So with all the uncertainty around BTR right now. How much in your view, how much that impacting the REITs decisions on allocating capital and and therefore opportunities for long term growth?
- [46:33]
C
That's a great question and I think it's interesting point on amh. You have to keep in mind that they're delivering homes this year and presumably next year as well based on land decisions and investments they made several years ago. So it's hard for them to really ramp all of that back, even though perhaps they would want to ramp it even further back given the external growth and interest rate environment. But overall, I think it's definitely having an impact on how these companies are allocating capital, but I don't think it's the only factor. The companies were already operating in a much tougher capital allocation environment. Their stock prices were pressured, their cost of capital was elevated, acquisition and development yields were not especially compelling and you had fundamentals decelerating against all of that as well. So even before layering in legislative uncertainty, the hurdle rate for growth had certainly gone up. That said, I think the Senate bill and the BFR provision specifically add another layer of caution for these companies as they think about the right capital allocation moving forward. AMH discussed previous expectations for a similar number of development deliveries in 26 as 25 as recently as October. But their guidance later, as you know, contemplated a much lower level of deliveries and capital deployment. And I'll give you some more information on that if we rewind. Like I said to late October, AMH said they were expecting, which would have been roughly 2,300 homes of development and over a billion dollars of development capital by late February. Their formalized guidance for 26 embedded about 15 to 20% fewer home deliveries and about 30% less capital being deployed for development. And Jay, I'm not sure that 100% of that is from a shift in underwriting or fundamentals, which were pretty consistent over that timeframe.
- [48:20]
B
Yeah.
- [48:21]
C
And for invitation, if you think about they ended 25, they had nearly 900 new homes in their pipeline of forward purchase agreements with home builders and in 4Q they added 200 to that pipeline. Fast forward to the first quarter, they're down to only 550 homes in that pipeline from builders and they canceled 80 from their backlog. So that's a pretty stark shift. And if anything it seems like leasing fundamentals improved from the fourth quarter to the first quarter, which kind of to me would otherwise drive more optimism for underwriting, not less so kind of to us that psychology and that shift over the last three Months really does lend prudence to the fact that the heightened legislative uncertainty is playing a role here.
- [49:04]
B
Yeah. And I know they've been very careful not to, you know, kind of in their language, not to directly call out the federal government. But certainly reading between the lines, it seems pretty clear that the policy is having an impact on reduced supply, which
- [49:17]
A
is everyone said what would happen.
- [49:20]
C
Well, Jesse, please, I'll give you one other piece of information. If we want to kind of broaden this and think beyond the REITs as well. We have our private single family rental operator survey, and that kind of corroborates the shift in reduced investor demand broader than just the REITs. In January, our total investor demand index on a 0 to 100 scale was 36, which was well below the pre Covid average of 57. And by March, that index had fallen from 36 to 32, which is the weakest reading in our survey's history. So, you know, it's not just the REITs. It's all institutional investors of different sizes and geographies and scopes and I'm sorry,
- [49:59]
B
what was the index measuring?
- [50:01]
C
It measures investor demand for single family for purchasing new single family homes.
- [50:08]
B
Interesting. Yeah, that's a great stat. All right, Jess, you earlier kind of hinted at leasing and how it actually improved a little bit. And I was actually a little bit surprised by the tone that was used. AMH called it a record March and I said, hey, it's not due to a change in move has to purchase.
- [50:26]
A
Everyone's always like, oh, move has to purchase. That's the thing.
- [50:28]
B
No, they said it's actually a pickup in new lease demand. Which, you know, the story of the past year previously was, was kind of slow new lease demand. And imitations had some positive things to say too. So what did you make of the. Of the Q1 leasing in April, leasing numbers they talked about?
- [50:45]
C
I think we're feeling measured Overall. I would characterize the spring leasing data that the companies provided as encouraging, but not quite an out of the woods type of moment or momentum just yet. I mean, there was clearly clear, clearly an improvement from a weak start to the year. And AMH kind of talked about why the start to the year was a bit weaker. They attribute it to colder weather in certain parts of the country, economic and geopolitical uncertainty weighing on the start of the leasing season. And of course, now the improvement we're seeing is coming off a lower base. But it wasn't just weak for the single family rental sector. The beginning part of the year was pretty weak across the rest of housing as well. But if you take a step back now and you look at the improvement invitation, they saw 230 basis points of sequential acceleration for new move and rent growth in April. That's great. I mean, it's coming off a low base, but it's above 50 basis points and 100 basis points, 140 basis points, excuse me, of acceleration in April from March last two years. They also had occupancy improve each month through the year so far. But I think I'd be careful, Jay, to extrapolate one or two months too aggressively because of course we know seasonality is your friend this time of year. And it sounds like there's still supply that needs to be worked through. It sounds like kind of the front end of where we expect supply to go is improving, but there's still work to be done in wood to chop with what's out there in the field. And we can't lose sight that if taking a step back, we're still at all time lows for both renewal rent growth and new move in rent growth on average for both companies for their first quarter ever since they've been. Since I IPO'd.
- [52:19]
B
Wow. This first quarter you said was the lowest for new and renewal rent growth since the ipo. Wow. Wow, that's. That's fascinating. Yes. Okay, so you. So maybe it's. We're seeing some improved glimmers in the new leasing side, but still a pretty hole to dig out of, in other words.
- [52:34]
C
Yeah, I think so. And I think another interesting tidbit is invitation release is a kind of days to re resident measure. It's akin to days on market and it took them 61 days to occupy vacant homes in the first quarter. That was up nearly two weeks year over year. Now that does include the time it takes them to turn the unit, which is roughly two weeks. I assume that was relatively consistent over this time frame. But that's consistent also with our private survey. It showed days on market in the first quarter was up nine days year over year, and believe it or not, stretched about three weeks from pre Covid levels. So I think to kind of summarize all this, we want to keep the context in mind of where we are today across history. But of course the improvement into April is a great first step in the right direction and we need to keep compounding more strong months like this as we continue in the spring leasing season.
- [53:20]
A
Season, absolutely.
- [53:21]
B
So it goes without saying that Q2, here we are in Q2. That's going to be critical for the path that these REITs go on. Now you follow this much more closely than I do, but I noticed in that we saw a pop in the stock prices at both REITs after earnings calls. Was that due to the positive things around said around the spring leasing momentum or were there other factors at play, you think?
- [53:44]
C
I think that definitely played a role. I would probably attribute the stock reaction to a couple things. One was yes, the investors were relieved to see the leasing momentum improve after a tough start to the year. I think capital allocation has become a bigger part of the story. We saw both companies lean pretty heavily in share buybacks. If you think through Both companies next 12 month AFFO yields or cash flow yields, they were in the high 5% range to low 6% range in the first quarter, well above the quoted roughly 5% acquisition and development yields from both companies. So I think investors have appreciated the companies more materially committing to share buybacks and investors acknowledging that is the best use of capital in the current environment. And I think the third piece probably relates to the regulatory environment of kind of right sizing expectations surrounding legislation both in terms of I think probably if the seven year disposition ban does stay in the finalized bill, which I think is the largest concern, they're concluding that this legislation is imperfect but it may not be the worst case scenario or their initial interpretation may have been too punitive. And I'm happy to talk through some of the seven year disposition requirement in more detail, but we're more constructive now than we were a few months ago and I feel like investors are as well in terms of how companies can actually still grow even if there is that seven year disposition requirement in the finalized bill.
- [55:13]
B
Yeah, no, those are great points but let's talk. I want to talk more about the stock price too. So you know you mentioned the discount to NAB discount net asset value. That's been a pain point for the apartment REITs as well as the SFR REITs. What is that discount today for the SFR REITs? Why is it what it is and what will it take to bring them back in line?
- [55:33]
A
You think so?
- [55:35]
C
By our estimates, the single family REITs are trading at a discount to NAV in roughly the mid teens. I think overall the market's telling us that investors seem to think NAV is a less useful valuation anchor than it was a few years ago. If you think through today's environment, obviously external growth, which I'm referring to acquisitions and development, have slowed materially. I think investors are increasingly paying for cash flow durability Dividend yield, capital allocation. And of course they're excited to see evidence that same home fundamentals are stabilizing. I think this is kind of all part of the reason why from a valuation perspective, we've increasingly looked at these stocks more as bond like cash flow vehicles. So one of the things that we do is we compare their AFFO yields, in other words, their cash flow yields to triple B corporate bond yields. So in our latest work, AMH was yielding roughly 5.5% on a forward AFFO basis. That's about 10 basis points above BBB corporate bonds. Invitation was about 40 basis points spread above BBB corporate bonds. And those spreads are narrower or in other words more expensive than the average was from 2017-19 when the backdrop was obviously significantly more stable. To us, that suggests investors are already starting to look through 2026 and price in a better 2027. And on this measure we think they ultimately look roughly fairly valued. Now to bring it back to the final part of your question and is what brings a NAV and what brings kind of valuation back in line? I think it would take a more sustained recovery in fundamentals, more optimism that the supply overhang is in the rearview mirror and not just a slowdown in new development that we anticipate will reduce supply in the future, but a more significant absorption of the supply that's in the field, which sounds like it's still bloated across many of the Sun Belt markets. And of course another thing that would help narrow the valuation gap would be a return to an increased acquisition and development environment.
- [57:40]
B
Oh yeah. So I'm curious that ask you if NAV is less important going forward. Is there a risk that SFR REITs just structurally are valued below NAV and therefore do we have more risk of more take privates acquisitions obviously lost Tricon lost others lost a bunch of apartment REITs. Do you see a scenario where that becomes a challenge for sfr?
- [58:08]
C
I don't know that we're going to permanently be disconnecting from nav. I think the current backdrop with the lack of growth and the historically low cash flow growth, the lack of external growth as well, is somewhat reshaping investors expectations and what they're requiring and what they're looking for to actually own the stock relative to other investment options out there. So we think it could be somewhat of a temporary dislocation given the backdrop and not a permanent dislocation. But if we think through adding some home building context, the public home builders don't always trade at a floor of one Times book, these companies don't necessarily trade at liquidation value. I think it's a similar idea here. When the outlook deviates from what investors are requiring to own the stock, I. E. External growth from acquisitions and development, you know, is, is lessened and you're not seeing as strong cash flow growth now like I said at all time lows, they can trade at wider discounts to nav. So when those factors improve more materially, I think we can get a shrinking of that discount as well.
- [59:14]
B
No, I hope you're right. Just very selfishly, I don't like losing any more REITs like they're, they give us great color on the market. They're forced to tell us things the
- [59:21]
A
private sector can't tell us.
- [59:23]
B
And so, you know, I love getting, as a research nerd, I like getting that color that we wouldn't otherwise get. So I hope open, they all stay put.
- [59:31]
C
Absolutely. I'm with you. You're at risk of losing one on the, on the apartment side. See how that plays out.
- [59:37]
B
Yeah, at least one. Yeah, it's been a steady trickle down for a while now. So how do you see the zooming out a little bit? How do you see the rest of 2026 playing out for SFR? You know, in the, in the guidance that we saw in the last calls, the REITs seem to be suggesting some incremental improvement as supply comes down, which is consistent with they've said previously as well as what the apartment REITs have said as well. But, but what's your take?
- [60:04]
C
So we expect 26 to be a transition year, which is what we've anticipated since last year as well. I think supply is still being absorbed. Operators are prioritizing occupancy, maybe at the expense of new move in pricing which also remains under pressure. So we're not anticipating a clean immediate snapback. We do quarterly macro forecasts. A couple months ago we lowered our national single family rental blended rent growth forecast to 1.6% in 26 and 2.1% in 27 with occupancy improving modestly year over year in 27 to roughly 96%. Again, that's a, a national number. So ultimately we expect 26 to be the near term trough. We expect 27 to be the first year of rent growth acceleration since 22. But even then we expect rent growth to remain well below the roughly call it 4% pre Covid average. And we expect similar trends directionally for the single family REITs as well. But I'll add the constructive piece here, Jay, and what Gives us confidence in that acceleration is affordability and the fact that weak rents in the near term are somewhat self correcting over a longer time frame. Rent growth has been lagging wage growth. So single family rental affordability is improving pretty meaningfully. In the first quarter we saw rent growth lag wage growth yet again. That was the seventh straight quarter which pushed single family rental affordability from a rent to income perspective, finally below the pre Covid average. And impressively this is only and even less than three years removed from an all time high. So this really sets the stage for better pricing power in 27 with one caveat, that if supply cooperates. But I'd stress that we don't see this as a hockey stick type of recovery. It's more of a stabilization in 26 reaching the trough, maybe accelerating into the end of the year into 27 from a low base. But ultimately supply is still the problem in the near term, whether it's from, you know, still BFR lease ups or apartment deliveries that are being highly incentivized for, for potential tenants and accidental landlords that we've heard a lot about over the last few quarters here. But as that supply gets absorbed and new supply slows, we're expecting more material improvement over the next couple of years than in 2026 specifically.
- [62:27]
B
Yeah, that makes sense. I'm curious, just actually we're at 27, so as you mentioned, low twos, that'd still be well below the long term norm. So do you think it's still. You kind of touched on this earlier, but just the supply, the external landlords, that's still a factor in 27 compressing rent growth next year.
- [62:45]
C
Well, part of the reason why you're not seeing a stronger acceleration from just a headline number is because you're ending the year still pretty weak off of the beginning of this year being weak. So you're coming off a low base and accelerating into that. So it's still a good sign that you're up on a year over year basis despite 26 being even weaker. But I think to see even stronger results we need to see stronger economic backdrop, maybe reduced macro uncertainty, maybe some more wage growth acceleration. We found in our research that wage growth is probably the highest driver, the most correlated factor to rent growth. So it's still kind of an economic backdrop story in addition to just on a more micro level and what's happening in supply and demand across their footprints.
- [63:32]
B
Yeah, no, that's a great point about wage growth. And obviously to your point, if we didn't have all the supply in the market right now, we would be seeing a lot more rent growth for SFR and for multifamily because of that wage growth that you alluded to. And maybe that's a good tie into the next question. Jesse. So, you know, you work with a lot of different investors, you have a lot of clients. Obviously Zelman are big names, you're well connected across the, across the, across the market. And so as you talk to folks, what do most investors, we know what the policymakers get wrong, we know what the media gets wrong. But what do most investors get wrong about sfr?
- [64:05]
A
And is there any particular topic or
- [64:07]
B
question that you find you may get where there may be some perception that's
- [64:12]
A
not tied to reality?
- [64:14]
C
Yeah, that's a great question, Jay. I love this one. We think one thing about the sector that's a bit misunderstood is that the single family rental sector does not simply benefit every time home ownership gets less affordable. The intuitive argument is mortgage rates are high, people can't buy homes. So that must be good for the single family rental sector. Well, the reality is the single family rental market and the for sale housing market are intertwined. They're driven by the same underlying forces, some of which we talked about. Job growth, wage growth, consumer confidence, household formation. So when the for sale market is weak, we don't see that that's automatically good for single family rental. In fact, it could be a headwind for rent growth, especially on new move ins. So we found new move in rent growth for SFR has been highly correlated with existing home price appreciation. So if you're in a flattish existing home price appreciation environment, that typically doesn't scream pricing power for rental operators. In fact, it tells you the broader housing consumer is under pressure. So the REITs, understandably, they've talked a lot about the relative affordability of renting versus owning as a tailwind. And we agree with that to a point. It surely helped with turnover on the margin. But if that tailwind were overwhelming and that was the number one factor, the highest correlated, we wouldn't have seen several years of consistent rent growth deceleration. We wouldn't see historically weak occupancy trends. We wouldn't see negative new move in rent growth. So I think the missing piece in that relative affordability argument of owning versus renting is it's only looking at one side of the renter spectrum. And not every household that's priced out of homeownership becomes a single family rental. We know people are living with their parents, people are living in Multifamily, they're doubling up, tripling up with roommates where, oh, by the way, new supply in that sector has made it such that there's more compelling incentives keeping those renters in multifamily longer than they would otherwise be. And so you ignore the front end of the leasing funnel by focusing too narrowly on the owning versus renting side of the equation. That said, obviously, compelling relative affordability didn't hurt and the deceleration would have undoubtedly been more pronounced if we didn't have this backdrop, but it's not the primary factor, as some would suggest.
- [66:32]
B
Yeah, so well said. Yeah, I see it as like, it helps the retention side, but it hurts you on the new lease side. And really, you need both. But it's funny. You'll appreciate this.
- [66:43]
A
I remember about a year ago, maybe
- [66:44]
B
a year and a half ago now there's a Wall Street Journal article that said people can't buy a house, so
- [66:48]
A
therefore rents are just going to soar.
- [66:50]
B
And then I got a bunch of questions from speaking at events. You have LP investors who are like, oh, why aren't we seeing this big rent growth?
- [66:57]
A
It's like, all right, let's talk about this.
- [66:58]
B
It's not what you think.
- [67:00]
C
Right, Right. Let's break down the pieces of what's driving rent growth. That's helpful. It's better than not having it. But that's not one of the number one drivers. It's not the number two driver. It's a good to have, but it's not, you know, what's going to drive returns here.
- [67:14]
B
Absolutely. Well, Jesse, this has been a lot of fun. Thanks for the time and appreciate all you do in tracking the the SFR reads and in the broader sector, of course.
- [67:23]
C
Thanks so much for having me. It was a lot of fun.
- [67:44]
A
That's wrap on episode number 84 of the rent Roll. Thank you to Jesse for being our guest today. Thank you to our sponsors, thank you to JPI Madera Funnel, Brocadia Authentic Foxen Grotto AI and to my friends, Apartment Life. And thank you to all of you for spending part of your day with us. We'll see you next time.