Goldman Sachs Adjusts Ratings: Challenges for Residential REITs
Market Challenges for Residential REITs
Analyst Julien Blouin from Goldman Sachs has voiced caution regarding the residential real estate investment trust (REIT) sector. He indicates that the second half of the forecast period leading into 2026 poses significant challenges, influenced by declining job growth, easing migration trends in key markets, and an uptick in supply forecasts. These factors are undermining the pricing power for many residential REITs, even as absorption rates remain steady.
Recent Downgrades in the Sector
Goldman Sachs has recently downgraded the valuation of Camden Property Trust (CPT). The stock is now rated as a Sell, with a revised price target of $106, reduced from $118. Key factors in this decision include ongoing vacancies and continuous revision of supply expectations in Sunbelt markets, both of which present substantial challenges. Furthermore, Goldman anticipates a modest rent growth of just +1.4% in 2026, falling well short of the company's own projections that exceed 4%, indicating limited potential for stock price appreciation.
Camden Property Trust's Performance
As Camden navigates these trials, its stock has been under pressure, currently trading at $107.50, reflecting a marginal increase of 0.35%. This suggests that despite the challenges, there may still be some investor interest in the REIT, as it continues to adapt to changing market dynamics.
American Homes 4 Rent Under Pressure
American Homes 4 Rent (AMH) has also seen its rating shifted to Neutral from Buy, alongside a price forecast drop to $37 from $43. Analysts caution that the slowing home-selling climate is resulting in an increase of 'shadow supply'—where unsold homes are converted into rental properties. This shift is leading to a higher number of single-family rentals in AMH's operational areas, which is expected to constrain rent growth through 2026.
Invitation Homes' Stable Outlook
Contrarily, Invitation Homes Inc (INVH) retains a Buy rating, albeit with a price target adjustment to $36, a decline from previous expectations of $37. Despite the overall deceleration in rental trends, analysts believe that Invitation Homes' extensive scale and favorable valuation keep it well-positioned compared to its competitors in the single-family rental segment.
Other Key Ratings
Mid-America Apartments Communities Inc (MAA) maintains a Neutral rating with a revised price target of $148, down from $163. This adjustment stems from updated rent growth projections based on a forward FFO multiple of 16.3x. On the other hand, Equity Residential (EQR) is also at a Neutral rating, seeing a slight price target reduction to $70 from $72, reflecting softening trends in crucial markets like Washington, D.C. and Boston.
Essex Property Trust Resilient Amidst Challenges
Meanwhile, Essex Property Trust Inc (ESS) remains at a Neutral status, with a new price target of $291, slightly up from $288, backed by a forward FFO multiple of 17.4x. Goldman Sachs projects top-tier rent growth for the years 2026-’27 in regions with limited supply on the West Coast, but acknowledges immediate hurdles in Los Angeles.
The Sector's Outlook
Amidst all these shifts, there's a consensus that the marketplace presents significant headwinds. Blouin’s analysis suggests an infusion of supply coupled with slowing migration trends diminishes the positive effects of strong absorption levels recorded in recent years. The expectations for rent growth in 2026 could be oversold, particularly in major markets like Houston, Dallas, and Phoenix. The coastal regions are also projected to struggle, with Washington, D.C., and Boston showing signs of further deterioration. However, San Francisco appears to maintain stronger momentum compared to its peers.
The general sentiment indicates that the residential REIT sector is grappling with a persistent weak job growth environment that could hinder demand from surpassing supply in any meaningful way. Until vacancy rates improve and updates to supply stabilize, the pricing power could remain a distant goal for many in the industry.
Frequently Asked Questions
What prompted Goldman Sachs to downgrade Camden Property Trust?
The downgrade was prompted by ongoing vacancies and revisions to supply expectations in key markets, suggesting challenging conditions for rent growth.
What is the new price forecast for American Homes 4 Rent?
American Homes 4 Rent's new price forecast is set at $37, down from $43, reflecting concerns over rising rental competition from unsold homes.
How is Invitation Homes rated amid changing market conditions?
Invitation Homes retains a Buy rating, although its price target was trimmed to $36, owing to its strong positioning in the single-family rental market.
What does the outlook for rent growth in 2026 look like?
The outlook for rent growth in 2026 appears subdued, as analysts suggest that expectations may be oversold due to persistent supply growth and job market challenges.
Which residential REIT remains a standout in the current climate?
Invitation Homes is currently noted as the standout among residential REITs, maintaining its Buy rating despite the sector's challenges.
About The Author
Contact Henry Turner privately here. Or send an email with ATTN: Henry Turner as the subject to contact@investorshangout.com.
About Investors Hangout
Investors Hangout is a leading online stock forum for financial discussion and learning, offering a wide range of free tools and resources. It draws in traders of all levels, who exchange market knowledge, investigate trading tactics, and keep an eye on industry developments in real time. Featuring financial articles, stock message boards, quotes, charts, company profiles, and live news updates. Through cooperative learning and a wealth of informational resources, it helps users from novices creating their first portfolios to experts honing their techniques. Join Investors Hangout today: https://investorshangout.com/
The content of this article is based on factual, publicly available information and does not represent legal, financial, or investment advice. Investors Hangout does not offer financial advice, and the author is not a licensed financial advisor. Consult a qualified advisor before making any financial or investment decisions based on this article. This article should not be considered advice to purchase, sell, or hold any securities or other investments. If any of the material provided here is inaccurate, please contact us for corrections.
