3 Residential REITs to Consider Despite Current Market Challenges

The Zacks REIT and Equity Trust - Residential industry is facing headwinds from oversupply and economic uncertainty. A surge of new apartment units, particularly in the Sun Belt, has weakened rents and occupancy, forcing landlords to rely on concessions to attract tenants. Broader macroeconomic pressures, including tariffs and labor market strain, further weigh on renter affordability and investor sentiment.

However, demographic-driven household formation and high costs of homeownership continue to support strong rental demand, tenant retention and renewal growth, with slowing construction potentially easing oversupply pressures. Industry players like Equity Residential EQR, UDR, Inc. UDR and American Homes 4 Rent AMH are well-positioned to benefit.

About the Industry

The Zacks REIT and Equity Trust - Residential category includes companies that own, develop and manage various residential properties, such as apartment buildings, student housing, manufactured homes and single-family homes. These REITs generate revenues by renting spaces to tenants. While most residential REITs lease properties like apartments and single-family homes to a broad range of tenants, student housing is exclusively leased to students. As a result, student housing properties are typically located near colleges and universities to serve their target demographic. Moreover, the demand for student housing is closely tied to enrollment growth at educational institutions, making it a key driver for this market segment. Some residential REITs may focus on specific regions or types of housing to better address local market dynamics or serve particular tenant demographics.

What's Shaping the REIT & Equity Trust - Residential Industry's Future?

Elevated Supply of New Apartment Units: The U.S. apartment market is showing signs of softening. Modest rent declines, slight dips in occupancy and widening regional differences indicate shifting dynamics for landlords. The primary driver has been a surge in new apartment construction, which is more pronounced in Sun Belt cities. This oversupply has started to limit rental growth and put pressure on occupancy levels, forcing landlords to compete more aggressively for tenants.

As a result, many property owners are turning to concessions to attract residents and keep the existing ones. Moreover, as consumers curtail discretionary travel spending, markets that depend on tourism are experiencing softness.

Macroeconomic Headwinds: The residential real estate market faces strain from broader economic challenges. Ongoing macroeconomic uncertainty, coupled with the impacts of tariffs, is creating stress in the labor market and affecting consumer confidence — two key factors that influence household formation. Concerns remain about the indirect effects that tariffs may have on both consumers and housing demand.

Rising costs and potential income pressures may limit renter affordability, making it harder for households to enter or remain in the rental market. At the same time, these headwinds are likely to temper investor sentiment, as uncertainties around growth, spending power and housing fundamentals add risks to the residential property sector in the near term.

Solid Rental Demand and Strong Retention: Despite increased supply, the U.S. residential real estate market continues to find support from strong underlying demand. Demographic shifts are fueling household formation, while higher ownership costs are limiting the ability of renters to purchase homes. This dynamic reinforces rental housing as a more affordable and flexible alternative, with the relative expenses of single-family homes further enhancing multi-family demand.

Landlords are also focusing on property upgrades and enhancing resident experiences, which have supported tenant retention and driven healthy renewal lease growth. While certain regions face near-term oversupply pressures, a slowdown in development activity can help restore balance. This easing of construction may set the stage for improving occupancy and rental performance over the coming periods.

Zacks Industry Rank Indicates Bleak Prospects

The REIT and Equity Trust - Residential industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #161, which places it in the bottom 34% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the downward funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are losing confidence in this group’s growth potential. Over the past year, the industry’s FFO per share estimates for 2025 and 2026 have moved 3.2% and 3.9% south, respectively.

However, before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and valuation picture first.

Industry Underperforms Sector & S&P 500

The Zacks REIT and Equity Trust - Residential industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.
The industry has declined16.6% during this period against the S&P 500’s rally of 19.9%. The broader Finance sector has risen 18.3%.

1-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing residential REITs, we see that the industry is currently trading at 15.15 compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 23.39. However, the industry is trading above the Finance sector’s forward 12-month P/E of 17.60. This is shown in the chart below.

Forward 12-Month Price-to-FFO (P/FFO) Ratio

Over the last five years, the industry has traded as high as 26.19 and as low as 13.61, with a median of 16.98.

3 Residential REITs to Consider

Equity Residential: The company has an established presence in Boston, New York, Washington, DC, Seattle, San Francisco and Southern California, and an expanding presence in Denver, Atlanta, Dallas/Ft. Worth and Austin.

With a strong presence in urban and high-density suburban areas, this residential REIT stands to gain from favorable apartment market demand. High homeownership costs are expected to sustain renter demand in its markets. The company’s diversification efforts into the suburban markets to capture rising demand are encouraging. Its focus on technology and enhancing organizational capabilities supports margin growth and operational efficiency, positioning the company for continued success.

Equity Residential has recently reaffirmed that its operations remain within guidance. The REIT has reported that its same-store revenue growth is on track, and it continues to expect to generate same-store revenue growth of 2.6-3.2% and physical occupancy of 96.4% for 2025. Additionally, EQR reaffirmed its blended rate growth forecast of 2.2-2.8% for the third quarter. The company informed that it was wrapping up its peak leasing season with sustained high occupancy levels and solid resident retention. 

Equity Residential currently carries a Zacks Rank #3 (Hold). Although EQR shares have declined 6.8% over the past six months, the Zacks Consensus Estimate for its 2025 and 2026 FFO per share has been revised upward over the past two months to $3.99 and $4.17, suggesting 2.57% and 4.55% year-over-year growth, respectively, which is encouraging. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UDR: The company is focused on managing, buying, selling, developing and redeveloping real estate communities in targeted U.S. markets. As of June 30, 2025, UDR owned or had an ownership position in 60,535 apartment homes, including 300 apartment homes under development.

UDR is well-positioned to benefit from a diversified portfolio with a superior product mix of A/B quality properties in the coastal and Sunbelt markets. Healthy demand for rental units in its markets amid favorable demographic trends is likely to benefit the company. UDR experienced a low resident turnover in the second quarter of 2025.

Efforts to leverage technological moves to enhance operational efficiency and drive margins augur well. A focus on a strong balance sheet position and disciplined capital distribution is encouraging. 

UDR currently carries a Zacks Rank of 3. Although the company’s shares have declined 2.1% in the past month, the Zacks Consensus Estimate for the current-year FFO per share has been revised upward marginally over the past two months to $2.51.

 

American Homes 4 Rent: This Maryland-based REIT focuses on acquiring, developing, renovating, leasing and managing single-family homes as rental properties. The REIT’s homes — mostly detached single-family residences with 3-4 bedrooms and about 2,000 square feet — are located in desirable neighborhoods across more than 30 markets, lending both geographic diversification and appeal.

American Homes 4 Rent benefits from strong demand tailwinds and durable resident profiles. It has a substantial resident base as millennials enter family formation years and transition from apartments into single-family rentals. They have high income levels and a propensity to stay longer.

Moreover, two-thirds of AMH residents are essential workers or employed in stable industries. AMH’s same-home occupied days remain high (averaging around 96%), reflecting consistent tenancy and strong renewal rates. AMH also has a high-quality investment-grade balance sheet.

AMH currently carries a Zacks Rank #3. Although the company’s shares have declined 7.7% in the past six months, the Zacks Consensus Estimate for its 2025 and 2026 FFO per share has been revised marginally upward to $1.86 and $1.97, suggesting 5.08% and 6.12% year-over-year rallies, respectively.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Equity Residential (EQR): Free Stock Analysis Report
 
United Dominion Realty Trust, Inc. (UDR): Free Stock Analysis Report
 
American Homes 4 Rent (AMH): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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