Residential REITs Face Harsh 2025–'26 Setup As Goldman Sachs Cuts Ratings On Camden, American Homes 4 Rent
News Summary
Goldman Sachs analyst Julien Blouin has adopted a cautious stance on the residential REIT sector, highlighting a challenging setup for the second half of 2025 and into 2026. He cited weaker job growth, slowing migration trends in Sunbelt (south and southwest U.S.) markets, and rising supply forecasts as key headwinds that continue to cap pricing power despite steady absorption levels. Goldman Sachs downgraded Camden Property Trust (CPT) to Sell with a price forecast cut from $118 to $106, citing persistent vacancy and ongoing supply revisions in Sunbelt markets. The firm now expects CPT's 2026 rent growth at just +1.4%, significantly below management's guidance of over 4%. American Homes 4 Rent (AMH) was lowered to Neutral from Buy, with its price forecast reduced from $43 to $37, as a weaker home-selling environment creates "shadow supply" from unsold homes being converted into rentals. Invitation Homes Inc. (INVH) remains the only Buy-rated stock in the group, though Goldman trimmed its price forecast from $37 to $36, believing its scale and relative valuation position it better than peers in the single-family rental segment. Mid-America Apartments Communities Inc. (MAA), Equity Residential (EQR), and Essex Property Trust Inc. (ESS) were maintained at Neutral, while UDR Inc. (UDR) remains a Sell. Analysts generally conclude that pricing power will remain elusive until vacancy levels ease and supply revisions stabilize.
Background
Residential Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-generating real estate. They are generally seen as income-producing investments and their performance is highly sensitive to macroeconomic conditions, particularly job growth, population migration, and housing supply. In 2025, with Donald J. Trump re-elected as the US President, investors are keenly observing the potential impacts of his administration's economic policies. Trump's administration might prioritize stimulating economic growth and job creation, which could indirectly influence the real estate market. However, interest rate policies, construction regulations, and fiscal measures potentially impacting housing affordability could all play roles in residential REIT supply and demand dynamics. Analyst downgrades for residential REITs typically reflect concerns about future rent growth and profitability, stemming from supply-demand imbalances, economic deceleration, or specific market risks.
In-Depth AI Insights
What is the deeper implication of Goldman Sachs's broad downgrade for residential REITs beyond the listed headwinds? - Goldman Sachs's widespread downgrades across multiple residential REITs signal a strong conviction that the entire sector faces structural challenges over the next 12-18 months, not just concerns over specific company fundamentals. - This suggests the market may have broadly overestimated the resilience of residential rent growth and underestimated the prolonged suppression of pricing power amidst weak job growth and increasing supply. - The move could catalyze a deeper re-evaluation of valuation models for residential REITs, fundamentally repricing their intrinsic value rather than merely adjusting short-term earnings forecasts. How might the "shadow supply" phenomenon, as highlighted for AMH, impact the broader residential real estate market and investor strategies? - "Shadow supply"—unsold homes converting into rentals—represents a new source of supply pressure distinct from traditional new construction, making it harder to quantify and predict. - This implies that even if new housing starts slow, rental market supply pressures could persist as high interest rates make selling homes difficult, incentivizing owners to rent rather than sell. - Investors need to reassess the risk exposure of single-family rental REITs, as this supply dynamic could lead to sustained downward pressure on rent growth expectations and potentially impact their asset turnover and disposition strategies. Given the re-election of the Trump administration, are there specific policy risks or opportunities for the residential REIT sector that Goldman Sachs's analysis might implicitly or explicitly overlook? - The Trump administration might pursue policies to stimulate housing construction through deregulation of land use and building codes to address housing affordability. This could accelerate new supply coming to market, further intensifying competition in the rental segment and adding pressure on rent growth. - Conversely, if the administration's economic stimulus policies lead to robust job growth and wage increases, this could partially offset supply pressures and support rental demand. However, this would require significant economic expansion in markets already experiencing supply overhangs, which is challenging. - Furthermore, the Trump administration's focus on infrastructure development could indirectly influence job centers and migration patterns, creating opportunities or challenges for residential REITs in specific geographical submarkets, requiring a more nuanced regional analysis.