EQR is down ~25% YOY yet it seems like luxury apartments in core markets (I can only attest for NYC) are completely unphased on price. Volume is down and properties are getting a handful of "real offers" as opposed to 20 but prices seem to be holding strong.
Is this sustainable? Do public markets interpret new information faster than private markets? Every deal I look at right now, I keep asking myself why not just buy EQR? But that's probably not a good answer if I want to keep my job. Interest rates are going up, a recession is probably coming in the near future, there's an NYC supply glut of MF housing and it's going to get even worse next year. I really can't see a scenario where Brooklyn justifies a 4% cap rate.
Really interesting question. I definitely think that there is an element of the private markets being "ahead" of private markets as far as pricing in anticipated decreased in rent growth. But there have been recent examples of REITs trading at big discounts to NAV (because the public market allegedly knew more than the private markets) that have proven to be wrong. A good example is Alexandria (ARE) who was trading in the $70s early this year on fears of rate increases and concerns about life-science industry (their main tenant-base) - the stock is at $111 today. The stock market is able to price these concerns in faster, that doesn't necessarily mean they are correct.
Conversely, I do agree with you that appreciation of urban, "core", apartments in the gateway markets has to slow down at some point and these buildings trading at 3-caps anticipating double-digit rent growth are going to leave someone missing their underwriting. It seems that many apartment landlords are looking to secondary (or even tertiary) markets where the supply is constrained because new building isn't feasible due to skyrocketing construction costs. If you believe in the story of Americans continuing to shift towards renting, you could continue to see strong rent growth in these markets.
Another thing is the reit prices are levered where you are comparing to unleveled asset price changes.
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