Housing supply issues are 'up on a location-by-location basis': Strategist
David Auerbach, Armada ETF Advisors managing director, joins Yahoo Finance Live to discuss mortgage rates, housing supply, homebuying sentiment, and more.
Video Transcript
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JARED BLIKRE: Welcome back. Mortgage rates inch higher once again, with Freddie Mac reporting a 30-year fixed rate at 5.54%. How are these elevated rates affecting REITs and ETFs? Well, with us today to talk about that is David Auerbach, Armada ETF Advisors managing director, as part of our ETF report. And this is brought to you by Invesco QQQ. So talk to me about this. How do we break this down?
DAVID AUERBACH: Jared, thanks so much for having me. And I just want to refer back to the previous segment. I also don't have a pair of Lululemon pants, but after seeing how excited Dave is about [INAUDIBLE]--
JARED BLIKRE: I'm in great company. Thank you.
DAVID AUERBACH: --my own pair. You know, Dave, as we know, as interest rates are going up, inflation is going up. As you just showed on the chart, mortgage rates are going up. And so, as a result, these rising rates continue to impact what I call the average investor, the first-time home buyer. The affordable house just does not exist anymore.
But from where we sit at Armada, we built the Home Appreciation US REIT ETF to take advantage of the residential REITs, those that focus on apartments, manufactured housing, single family rentals, and senior housing that do benefit in times of rising inflation and interest rates. So this is a great way to potentially play that sector and those dynamics without having to bet the house.
RACHELLE AKUFFO: Yeah, no pun intended. I mean, as we look at some of the best performing sectors today, real estate is definitely one of them. What are your expectations, though? As we see this housing market cool and we're not sure how long it's going to last for us-- we're still waiting for inventory to pick up-- what are you watching in that space?
DAVID AUERBACH: You hit that because, again, we know that the Fed's raising interest rates again, which means mortgage rates are going to continue to go up. I think a lot of the housing supply issues is on a location by location basis. I'm in Dallas. Right now, there's really not many signs that the Dallas market has cooled down significantly.
If you're in some of these top markets-- Charlotte, Nashville, Tampa, as I mentioned, Austin, Dallas, Houston-- until we start seeing a real significant hit to those types of relocation home sale numbers, I feel like we still kind of have some tailwinds going here. Obviously, as we know, there is a lot of uncertainty around-- if inflation continues to rise, if we go into a recession. If, if, if.
The second half of the year, we could be seeing some of that moderation. But again, from the residential side, from the residential REIT aspect of it, the renter, the landlord-- I mean, to be respectful, the landlord doesn't necessarily care that interest rates are going up, or inflation's going up. He's going to be knocking on the door next week or the week after next, pointing to his tenants and saying, rent's due. Where's our rent payment?
DAVE BRIGGS: David, you get a pair of pants. You don't like them, I'll buy them. I promise, I'll pay you back. You'll never take them off, my friend. I want to ask you about some housing numbers we saw earlier this week, in particular, housing starts, which were pulled back in terms of the single family but when you look at multifamily, complete opposite story. One of the highest we've seen in 30 years, 577,000. Does that tell you what trend is coming towards the multifamily building trend to come?
DAVID AUERBACH: I mean, they do say the trend is your friend, right, or at least, sometimes, it is. And I think, again, when you look at some of these markets, especially in the Sunbelt, where companies like Camden Property, UDR, Mid America, MMA, a lot of these properties, the apartment REITs are showing double digit year over year NOI, or rental rate, growth. Strong quarterly sequential growth, 98%, 99% occupancy.
There's that GIF of Frye from "Futurama"-- take my money. Take my money. And it just seems like we're in that same situation that if you build it, they will come. And we are noticing that a lot of these apartment REIT guys are hitting the gas pedal to grow their development platforms.
JARED BLIKRE: If you build it, they will come. And are we over building right now? I've been reading some reports around the Twitterverse that there is some overbuilding in commercial real estate of apartment buildings in certain key growth areas. And that maybe in a year or so, we're going to have a lot more-- too much supply in the market. Just wondering if that's a trend that you've noticed in any cities.
DAVID AUERBACH: You know, I don't get that impression yet, but I have to tell you, Dave, Jared, one of the things that we all have in common here, what every single investor is fortunate enough to have in common, is that we all go to sleep with a roof over our head. You're going to do whatever it takes to make sure that you and your family, your kids, your grandkids, have a great place to sleep every single night. That's the most important investment decision everybody makes every single day.
And so, if you can't buy a house, you're going to go rent from a single family rental. Based on the strong demand that we're seeing from a lot of these guys, you're going to go rent an apartment. And so, I don't think we're seeing necessarily oversupply. Since we know that we're so many millions of homes in lack of supply to satisfy the amount of demand that's out there, we still could see this going on for at least a couple of more years.
DAVE BRIGGS: David, I learned a new GIF or GIF, however you say it. I did not know that "Futurama" one, but thank you for that and the great stuff on the sector as well. David Auerbach, have a great weekend, my friend. Thank you.
