The housing market continues to be one of the black clouds that hang over the economy. However, not everything about real estate is in the doldrums. U.S. apartment vacancies fell to the lowest level in 10 years during the fourth quarter of 2011. The vacancy rate of 5.2% is better than the previous quarters' 5.6 and 6.6% one year ago. Even more promising is that as vacancies fell, the monthly effective rent increased by 2.3% from a year earlier. (For related reading, see How To Value A Real Estate Investment Property.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

It appears the trend in apartment rentals will continue, as more families are not able to get loans for home purchases and others are forced out of their homes and into rentals. As investors we can look to real estate investment trusts (REITs) that specialize in owning and managing apartment communities. If the trend continues, they will be one of the winners.

The Players
Equity Residential (NYSE:EQR) is one of the largest REITs that focus on multifamily properties. The company has over 400 high-quality apartment communities in 16 states and the District of Colombia. The approximate $16.7 billion company was up around 10% over the past year and currently has a 4% dividend yield. The stock has been consolidating over the last few months and appears to be a buying opportunity in the low to mid-$50s.

UDR Inc. (NYSE:UDR) is in the middle-market apartment community sector with ownership in over 62,000 apartment homes. The approximate $5.4 billion company has around 3.4% dividend yield and was up about 9% this past year. Technically, the stock is not far from the 52-week high and appears to continually hit resistance at the $26 to $27 area. Entering a new position in the low $20s offers the best reward-to-risk setup, unless you wait for a breakout above the 2011 highs. (For more information, read The Anatomy Of Trading Breakouts.)

Essex Property Trust (NYSE:ESS) concentrates on the West Coast with 155 apartment communities mainly in California and Washington. The approximate $4.7 billion company has a dividend yield around 3% and had a strong year, gaining about 21%. The stock came close to hitting a new all-time high in November, before pulling back with the market. The number to watch is $150; if the stock closes above this level it will mark a new breakout and a buying opportunity.

Apartment Investment & Management (NYSE:AIV) is home to nearly 250,000 residents in 38 states, the District of Columbia and Puerto Rico. The approximate $2.8 billion company has a dividend yield around 2.1%, but struggled over the past year, falling by about 10%. The stock has been finding some support near the $20 area and AIV could be a "sleeper" when it comes to 2012. It appears many investors have given up on the company, but if the sector continues to trend higher it will likely bring AIV along for the ride.

The Bottom Line
The one issue that could hamper the trend of lower apartment vacancies and higher rents is the economy. If the economy struggles and unemployment inches back up it would cause the apartment REITs to rethink rent hikes and vacancies could increase. Keep an eye on the economy and look for the direct correlation. (To learn more, read How To Analyze Real Estate Investment Trusts.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center