Demand slide prompts Raymond James to downgrade residential REITs

Investing.com -- Raymond James downgraded residential real estate investment trusts, warning that rental housing demand is deteriorating faster than many companies or investors appear to acknowledge.

Analyst Buck Horne wrote that the firm is “voicing our deepening concerns that the current demand deterioration across all forms of rental housing,” adding that these pressures “have only continued and accelerated into February.”

Horne said many REITs are “whistling past the graveyard” by projecting a normal seasonal leasing recovery into the summer despite clear evidence to the contrary.

Raymond James sees “no signs yet that this year’s leasing demand will improve any relative to last year’s disappointing results,” and warned that 2026 guidance assumptions across the sector now look increasingly at risk.

The firm cited multiple headwinds, including “A.I.-driven job displacements among young adults” and “increasingly aggressive domestic immigration enforcement activities,” both of which it said are weighing on renter household formation.

Raymond James added that absorption timelines for new supply are slipping as lease concessions grow and regulatory risks intensify.

The firm downgraded Essex Property Trust, Inc., Invitation Homes Inc., and American Homes 4 Rent to Outperform from Strong Buy, while NexPoint Residential Trust, Inc. was raised to Market Perform from Market Underperform.

Raymond James also highlighted what it called the “historic” reversal in multifamily demand. The firm said evidence points to “a softening in the labor market, particularly among the younger, entry-level end of the market,” while shifting immigration trends are “flipping toward potential net outflows in 2025 and 2026.”

High-frequency rent data shows second derivatives continuing to worsen, with more than 80 percent of tracked markets deteriorating over the past 90 days. The firm warned that early 2026 data signals “a softer peak leasing season” ahead.

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