David Auerbach, managing director of Armada ETF Advisors, joins Yahoo Finance Live to discuss mortgage rates, housing supply, home buying sentiment and more.
Jared Blikre: Happy to see you again. Mortgage rates are rising again, with Freddie Mac reporting a 30-year fixed rate at 5.54%. How do these high rates affect REITs and ETFs? Well, joining us today to talk about that is David Auerbach, Managing Director of Armada ETF Advisors, as part of our ETF Report. And this is brought to you by Invesco QQQ. So tell me about it. How do we break this down?
David Auerbach: Jared, thank you so much for inviting me. And I just want to go back to the previous segment. I don’t have Lululemon pants either, but after seeing how excited Dave is [INAUDIBLE]–
Jared Blikre: I’m in good company. Thanks.
David Auerbach: –my own pair. You know, Dave, as we know, as interest rates go up, inflation goes up. As you just showed on the graph, mortgage rates are rising. And so, therefore, these rising rates continue to impact what I call the average investor, the first-time home buyer. The affordable house no longer exists.
But from where we sit at Armada, we’ve built the Home Appreciation US REIT ETF to take advantage of residential REITs, those that focus on apartments, manufactured homes, single-family rentals and senior housing that benefit in times of rising inflation and interest. rates. So it’s 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 top performing sectors today, real estate is definitely one of them. What are your expectations, though? As we see this housing market cooling off and we don’t know how long that’s going to last for us – we’re still waiting for stocks to pick up – what are you looking at in this space?
David Auerbach: You hit it because, again, we know the Fed is raising interest rates again, which means mortgage rates will continue to rise. I think a lot of the housing supply issues are place to place. I’m in Dallas. Right now, there really aren’t many signs that the Dallas market has cooled significantly.
If you’re in some of those major markets – Charlotte, Nashville, Tampa, as I mentioned, Austin, Dallas, Houston – until we start to see a real significant impact on those kinds of sales numbers from relocation homes, I feel like we always sort of tailwinds going here. Obviously, as we know, there’s a lot of uncertainty around– if inflation continues to rise, if we go into a recession. Yes, yes, yes.
The second half of the year we might see some of this moderation. But again, on the residential side, the residential REIT aspect, the tenant, the landlord – I mean, to be respectful, the landlord doesn’t necessarily care if interest rates go up or inflation goes up . He’s going to knock on the door next week or the week after, pointing to his tenants and saying, the rent is due. Where is our rent payment?
DAVE BRIGGS: David, get some pants. You don’t like them, I’ll buy them. I promise you that I will pay you back. You will never take them off, my friend. I want to ask you about some of the housing numbers that we saw earlier this week, specifically housing starts, which have come down in terms of single family, but when you look at multifamily it’s completely the reverse . One of the highest we’ve seen in 30 years, 577,000. Does that tell you what trend is coming towards the upcoming multifamily building trend?
David Auerbach: I mean, they 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, apartment REITs have an NOI at double digits year over year, or rental rate, growth. Strong quarterly sequential growth, 98%, 99% occupancy.
There’s this GIF of Frye in “Futurama” — take my money. Take my money. And it just seems like we’re in the same situation that if you build it, they’ll come. And we notice that a lot of these apartment REIT guys are stepping on the accelerator pedal to develop their development platforms.
Jared Blikre: If you build it, they will come. And are we building right now? I have read reports on Twitterverse that there is overbuilding in apartment building commercial real estate in some key growth areas. And that maybe in a year or so we’ll have a lot more – too much supply in the market. I’m just wondering if this is a trend you’ve noticed in all cities.
David Auerbach: You know, I don’t have that feeling yet, but I have to tell you, Dave, Jared, one of the things that we all have in common here, what every investor is blessed to have in common is is that we all fall asleep with a roof over our heads. You are going to do whatever it takes to make sure you and your family, your kids, your grandkids, have a good place to sleep every night. It’s the most important investment decision everyone makes every day.
And so, if you can’t buy a house, you’re going to rent a single-family rental. Based on the high demand we’re seeing from a lot of these guys, you’re going to rent an apartment. And so, I don’t think we’re necessarily seeing oversupply. Since we know that we are so many millions of households short of supply to meet the amount of demand that exists, we could still see this continue for at least a few more years.
DAVE BRIGGS: David, I learned a new GIF or GIF, whatever you say. I didn’t know the one from “Futurama”, but thanks for that and the great stuff on the sector too. David Auerbach, have a nice weekend, my friend. Thanks.