Q: When the percentage of households that own their home goes down, what goes up?
A: The percentage that rent.
Avalon Bay Communities (NYSE:AVB) builds and runs apartment communities. Accordingly, it is in the one part of the housing market that is healthy. As fewer can own, due to the tightened lending standards, more must rent.
Also, some, but not all, of AVB's communities are urban. This is a huge advantage as the nation will slowly de-suburbanize and re-urbanize in response to increasingly tight fuel supplies. Human habitation will gradually become more concentrated, benefiting purveyors of urban rentals. Also, AVB qualifies as an REIT, and has a yield of 3.57%.
For those who want a safe and high yielding investment, well you are doing better than 5 year T-notes with this one. And if inflation rises, AVB may well be able to increase its rents and its dividends, unlike a 5 year T-note purchased today which pays out the same set amount, regardless of changes in the inflation rate.
Looking at the chart, as REITS in general got hit, AVB has declined from a high of close to $150, in February of 2007, to about $90 now, even as interest rates have fallen. This is a great example of a stock that has been pulled down because it has been "tarred by the same brush" even though unlike other REITs it is in the right place at the right time, rather than being in the wrong place at the wrong time.
One way in which AVB came to my attention is that it is just about finished building a downtown apartment complex in Bellevue, WA, where I live and work. If this development says anything about the market savvy of their team, then it is a very positive statement. The development is timed perfectly to profit from booming downtown Bellevue. AVB has played its cards exactly right, at least on this occasion.
On the downside AVB does have some far flung suburban developments out there. Well, nothing is perfect, and these will still benefit from the trend towards renting. After all, people need a place to live, and with the high vacancy rate of for-sale housing, and low rate of housing construction, rentals will benefit.
Disclosure: I don't own any AVB myself, but it is a holding in my SSOF1 porfolio, which is not entirely virtual as people have been investing in it, through the mFolio program.