Piper Sandler bullish on housing, sees rent rise into 2026

On Wednesday, Piper Sandler, a prominent financial firm, presented a positive outlook for the housing market. Analysts at the firm predict that the imbalance between household formation and new supply will continue to drive a bullish long-term view on housing. This analysis aligns with recent market data available on InvestingPro, which shows real estate companies adapting to these market conditions despite challenging profitability metrics. Despite a significant increase in apartment supply during the 2024/2025 period, only Atlanta, Austin, and Phoenix experienced notable rent declines. This trend suggests a persistent mismatch in the United States’ housing needs, as most markets either maintained or increased rental prices.

According to Piper Sandler, the housing market has not kept pace with population growth, which has surged by 75% since 1965, while housing starts have lagged behind the historical average since 2008. The firm estimates that household formation has outpaced supply by 2.3 million units since 2010, with other industry sources citing a shortfall of 3 to 5 million units. As apartment starts are projected to drop by approximately 65%, landlords are expected to gain pricing power from late this year through early 2028. Analysts reiterate an Overweight (OW) rating on coastal real estate names like AvalonBay Communities (NYSE:AVB), Equity Residential (NYSE:EQR), and Essex Property Trust (NYSE:ESS), anticipating they will perform well in the coming years. For deeper insights into real estate companies’ performance metrics and valuations, InvestingPro offers comprehensive analysis of over 1,400 US stocks, including detailed Pro Research Reports.

The analysis also highlights the resilience of homeowners, despite mortgage payments spiking to 34% of incomes recently, compared to an average of 17% from 1984 to 2021. Even with today’s mortgage rates of 6% to 7%, which are low compared to the approximately 15% rates of the early 1980s, the existing home market remains subdued. This is largely because around 75% of mortgages are below 5%. The firm notes that the increase in new homes’ time on the market is not a significant concern, as listings are still 30% lower than the pre-2020 levels. Piper Sandler maintains an Overweight rating on Howard Hughes Corporation (NYSE:HHH), which is capitalizing on the current high home prices with its master-planned communities (MPCs). According to InvestingPro data, HHH maintains a healthy 4.83% dividend yield and has analyst price targets ranging from $68 to $79, suggesting potential upside. The company’s current market capitalization stands at $1.12 billion, though InvestingPro analysis indicates the stock is currently trading near its Fair Value.

Piper Sandler concludes that while affordability is often cited as a barrier to housing, historical data shows no correlation between states with the highest population growth and income growth. This suggests that people tend to relocate to areas where housing is more readily available, regardless of the relative cost of homeownership to incomes. The firm’s analysts anticipate that the housing market will continue to find ways to adapt and grow, even in the face of affordability challenges.

In other recent news, Centerspace reported a fourth-quarter 2024 loss with earnings per share (EPS) of -$0.31, missing analysts’ expectations of -$0.15. Revenue for the quarter was $65.7 million, slightly below the forecast of $65.86 million. Despite these misses, the company raised its quarterly dividend to $0.77 per share and reported a core funds from operations (FFO) of $4.88 per share for the year. Centerspace also announced the upcoming retirement of Jeff Caira from its Board of Trustees, effective May 2025. This move is part of the company’s ongoing efforts to refresh its Board composition, with new members added in January and July 2024. The company has been recognized as a top workplace for the fifth consecutive year by the Minneapolis Star Tribune. Analyst firms have not recently upgraded or downgraded Centerspace, but the company’s strategic focus remains on growth and operational excellence. These developments reflect Centerspace’s current trajectory and strategic initiatives in the real estate sector.

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