Why this big Houston homeowner still expects rent spikes despite economic slowdown

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A tight housing market, coupled with renters’ insatiable appetite for apartments and rising rents, boosted second-quarter earnings for a Houston-based national homeowner that expects rent increases to continue this year despite signs of a slowing economy.

Camden, which has more than 58,400 rental units in its national portfolio, saw rents increase by an average of about 15.3 percent in the second quarter. In Houston, average rents at Camden’s 26 community communities here average about $1,570 — up about 8.65 percent year-over-year, according to earlier earnings results.

Though the rapid pace of rental growth across the country over the past year is showing signs of slowing, the housing developer still expects rents to rise as demand remains high due to housing shortages and higher home-buying costs, forcing many people to continue renting. The proportion of tenants moving out to buy a new home fell to about 15.1 percent across Camden’s portfolio from 17.7 percent at the same time last year.

“The year-over-year decline in home purchase evictions is not surprising. Since last year, home mortgage rates have nearly doubled and average selling prices for existing homes are now over $400,000 – so despite recent rent increases, many prospective homebuyers are likely to remain renters,” said Keith Oden, President of Camden Property Confidence, investors announced on July 29.

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At the same time, Oden acknowledged that the 18-20 percent rental spikes seen at some of its national properties last year are unlikely to occur again this year, adding that the level of rental growth is “unsustainable”.

In places like Phoenix, median apartment rents are up 12.5 percent, and in Los Angeles, apartment rents are up 11.3 percent year-over-year across the market (not just Camden properties), according to data from website ApartmentList. com. That compares to Houston, where median rents for a two-bedroom apartment rose 8 percent to $1,298, according to ApartmentList.

Given Houston’s comparatively slower rental growth over the past year, coupled with expected increases in employment in the energy sector, Oden argued that there could be more room for rent increases here for the remainder of 2022 than elsewhere in his portfolio.

“I think we’ll probably have a little more opportunity to raise rents a little more aggressively (in Houston because of) what happened to our consumers last year and they didn’t get outsized rent increases and there’s probably one coming in 2023,” said Odes.

Camden’s portfolio is also more focused on the Sun Belt region, where landlords of all housing types are enjoying steady demand from continued migration-driven population growth, which could also keep rental growth strong even if it slows more sharply elsewhere.

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Though consumers are feeling the effects of rising interest rates and inflation — which is at a four-decade high — Camden executives argued that mid- to upper-middle-range renters are better protected against the impact of rising consumer prices, giving them more leeway to do so Weather indicates the brewing recession. According to executives, a typical renter household in Camden earns in excess of three figures.

“Our consumers are doing really well. They all have jobs, and if you look at the annual income growth of Camden residents, it’s up over 10 percent,” Camden CEO Ric Campo said on the conference call. “Wall Street and financiers are concerned about interest rates and inflation, and that’s important and I think consumers are concerned about that too, but they’re also doing pretty darn well when it comes to income growth and savings rates.”

According to data released by the US Department of Labor on Friday, wages and benefits nationwide grew at a seasonally adjusted rate of 1.3 percent in the second quarter, down slightly from the 1.4 percent level in the first quarter.

With wages still rising and demand rising, Camden continues to push ahead with the construction of multimillion-dollar new homes in the South, albeit at a slower pace as delays are allowed on many subways. In Houston, Camden plans to break ground this year on a $75 million, 189-unit project in The Woodlands called Camden Woodmill Creek and an $80 million, 188-unit community in Richmond called Camden Long Meadow Farms.

Camden Property Trust’s total revenue rose nearly 31 percent year over year to $361.7 million in the second quarter, according to earnings figures released this week. Earnings rose to $497.3 million — up from just $30.1 million at the same time last year.

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