For Immediate Release
Chicago, IL – August 5, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Apartment Investors (AIV), Avalon Bay (AVB), Equity Residential (EQR), Family Dollar (FDO) and Wal-Mart (WMT).
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Here are highlights from Tuesday’s Analyst Blog:
More Pressure on Rents
The weakness in the market tightness index is particularly bad news for the Apartment oriented REITs like Apartment Investors (AIV), Avalon Bay (AVB) and Equity Residential (EQR). If an apartment is vacant, it means the owner is not collecting the rent, and if lots of apartments are available it means that when leases come up, they will not be able to increase rents and may have to cut them (often in a disguised way, by including a month’s free rent, for example).
More significantly for the national economy is that apartments compete with owner occupied housing. Indeed, the key measure of housing inflation for owner-occupied housing is not the price of a house, but the implied value of not having to pay rent, known as owners-equivalent rent.
One of the most important indicators warning that we were in a housing bubble during the middle part of this decade was the disconnect between the price of houses and the level of rents. Over the long course of history there has been a very stable relationship between them. After all, a house is an asset, and the value of an asset is the present value of the future cash flows it generates. In the case of a house, those cash flows are avoided rents.
Thus, if rents are falling, it means that housing prices are shooting at a moving target as they try to get back to normal levels. The more and longer housing prices fall, the greater the destruction of wealth for the vast majority of people in the country. It means more houses underwater, and more foreclosures and walkways. It means still more problems for the banks.
On the other hand, falling rents are great news for tenants. On average, renters are far less wealthy and have much lower incomes than are home owners. This might actually be a rare case where a bad economic trend actually helps the people at the bottom of society.
Renters are more likely to spend the extra income from lower rent than save it (simply because they tend to be lower income) thus helping to stimulate other areas of the economy. Stores catering to lower income people, like Family Dollar (FDO) and Wal-Mart (WMT), are probably the most likely beneficiaries of this.
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