|
Guardian Asset Management
Single Family Rental
Newsletter
| |
|
From our
SFR Operations Team
| |
|
Joshua L. Beam
SFR National Director of Operations
jbeam@guardianassetmgt.com
314-281-3439
| |
|
William Lynam
Director of Property Management
wlynam@guardianassetmgt.com
267-201-3616
| |
|
How Economic Shifts Are Impacting
the Single-Family Rental Market
| | |
|
|
From February 2020 to May 2022, investor purchases of single-family homes grew nationwide, increasing from an average share of 12.4% of homes purchased across the largest 50 metropolitan markets to 20.4%, according to a new study from First American.
Over the past year, however, as interest rates rose and house prices declined, investors pulled back from many single-family rental (SFR) markets and investor share fell to 16.2%. Though investor participation in the SFR market varies meaningfully by market, some regional trends are emerging.
Where’s Everyone Gone?
Several factors have driven the decline in investor participation. Investors are responsive to evolving market conditions and likely took the growing uncertainty in real estate valuations and yields as an opportunity to re-evaluate their portfolio allocation to SFR. Additionally, rising interest rates have made it more costly to acquire investment properties, which has muted commercial real estate transaction volume generally and has spilled over into the SFR market as well.
To understand how much investor participation in specific markets has retreated from recent peaks, markets can be placed into one of four categories: Boom-Bust, Boom-No Bust, No Boom-Bust, and No Boom-No Bust. Boom cities are those where investor participation increased more than average during the pandemic, and bust cities are those where investor participation has declined more than average from peak.
| |
Rental Market Tracker: The Typical U.S. Asking Rent is Only $24 Below its Record High | |
|
The U.S. rental market has been slowing for more than a year, but the median asking rent is still only $24 below its record high. It was $2,029 in June, little changed from $1,995 one month earlier, $2,019 one year earlier and a record high of $2,053 set in August 2022.
In percentage terms, rents were up 0.5% year over year in June, not far from May’s 0.6% annual drop. Rents rose 1.7% from one month earlier in June.
“The housing market tends to be ‘downside sticky,’ which means rents don’t typically fall much even when renter demand pulls back,” Redfin Deputy Chief Economist Taylor Marr said. “Instead of lowering rents when business is slow, many landlords offer perks like a free month’s rent or discounted parking, which tends to be less of a hit to profits.”
Marr continued: “The steep slowdown in rent growth over the last year is providing some relief for renters, who now have more room to negotiate as their landlords grapple with rising vacancies. But with rents near their record high, most renters still aren’t finding big bargains.”
While the dropoff in rent growth hasn’t made a big dent for many renters, it has helped ease the historic inflation plaguing U.S. consumers, according to data released today. Consumer prices were up 3% this year through June, a deceleration from the 4% figure reported in May and the peak of about 9% last summer. The cost of shelter, which mainly includes rent, rose 0.4% from a month earlier in June on a seasonally adjusted basis—a significant cooling from 0.8% at the end of last year. Inflation data typically lags Redfin’s rental data, so the slowdown in inflation reported today is in large part due to the deceleration in rent growth over the past year.
| |
|
Renters, Rejoice! Landlords Are Dropping Prices the Most in These 10 Cities | | |
|
|
Renters can let out a sigh of relief this summer as sky-high rents are finally coming down.
After about a 25% rent hike between early 2020 and mid-2022, there are now places in the country where renters can finally get a bit of a break. Monthly rents dipped 0.5% year over year in May, to a median of $1,739 in the 50 largest metropolitan areas. While that’s not a huge improvement for many who’ve been stretched thin, it does mark the first time in years that rents have dropped annually.
But the decline in rents is not uniform, and where rents are falling depends a lot on where you live–and, of course, on the everlasting battle between supply and demand.
“That’s as true for rental housing as it is in the for-sale housing market,” says Realtor.com Chief Economist Danielle Hale.
Rental demand goes up, she says, when incomes are high and rising, and when rents are low and affordable. In this scenario, people might be enticed to look for a bigger space or a nicer neighborhood, or people who’ve been living with roommates (or their parents) might decide it’s time to strike out on their own.
But right now, the opposite is happening.
“Rents are high, perhaps high enough that some people are taking on roommates or moving back in with Mom and Dad,” Hale says.
The fluctuations we’re now seeing are also largely regional. Rents in the West and in the South—where prices shot up over the past few years, but where the labor market has been relatively steady, Hale points out—are cooling. Plus, a surge in newly constructed apartments is beginning to happen, lessening the competition over units.
The West saw a 3% overall rental price drop over the past year, the largest regional decline. However, rental prices in the more affordable Midwest and Northeast are still rising—much to the dismay of tenants.
“With renters actively seeking more affordable places to live, it is expected that lower-rent markets, particularly those in the Midwest region, will experience relatively stronger rental demand, leading to accelerated growth in rents,” Jiayi Xu writes in the Realtor.com monthly rental report.
| |
Single-family homes built for the rental market jumped 35% to an all-time high last year | |
|
Construction of new single-family homes for the rental market reached a record high last year, the National Association of Realtors reported on Wednesday.
Such built-for-rent (BFR) housing starts jumped 35% to 81,000 units in 2022, NAR said, citing data from the Census Bureau. Meanwhile, their share of overall housing starts rose to 8% last year from 5% in 2021.
Both metrics are at their highest since data collection began in 1974. BFR properties, constructed for tenant use, are meant to offer renters an option that is more spacious than an apartment.
Growth in this emerging sector of the housing market comes as the inventory of existing homes remains tight, leaving prospective buyers to look to new homes.
"Just as many homeowners have felt the need for more space throughout the pandemic, the same is true for some renters. With this concept, a yard for a pet, a home office, and room for a new baby becomes more within reach," NAR deputy chief economist Jessica Lautz wrote.
BFR's share of overall housing starts grew in each region, led by the Midwest, which saw the share swell to 12% from 5%, NAR reported.
BFRs are an alternative for millennials and first-time buyers looking to reside in a home, as many have been unable to achieve homeownership amid low affordability. According to NAR, first-time buyers fell to 26% of the buyer market, compared to a 40% historic norm.
"BFR homes may be their solution—albeit temporary, as they save for their first home down payment," Lautz said.
| |
|
MetLife: Institutional Investors Could Own 40% Of Single Family Rental Homes By 2030 | |
|
Institutional investors started buying up single-family homes in foreclosure across the Sun Belt during the Great Recession, and analysts predict investors could control 40 percent of U.S. single-family rental homes by 2030.
Driven by skyrocketing home prices and rising mortgage rates, the U.S. could be on its way to becoming a nation of renters. New U.S. Census data shows the rate of U.S. homeownership is down to 63.1 percent — a 53-year low.
Despite predictions of a housing crash, housing prices are still rising in many parts of the U.S. The median sale price has increased by more than 9.38 percent since January, according to data from Redfin.
Just before home prices began to inflate in 2021, Amazon founder Jeff Bezos made a bet on a Seattle-based startup with a mission to make real estate investments more accessible to retail investors. Arrived Homes became the first company to sell shares of individual rental properties legally to nonaccredited investors.
| |
|
|
Wave of Rental Resets to Further Deplete
Affordable Housing
| |
|
The U.S. is at risk of losing nearly 200,000 affordable housing units over the next five years, as government protections end at hundreds of rental properties and landlords become free to set their own rents.
The federal government relies on a 30-year tax credit as its main program to encourage developers to build affordable housing. Now a wave of agreements that assisted low-income renters is set to expire, offering landlords the option to charge market rate for their units instead of continuing with the government program.
Many landlords are expected to raise rents following one of the highest periods of rent growth in recent history. Asking rents for market-rate units soared 25% between early 2021 and the summer of 2022, according to Apartment List, a rentals website.
As many as 188,000 low-cost rental apartments funded by the government tax credit are eligible to convert their properties to market rate by 2027, according to a report from Moody’s Analytics.
Some cities could lose large shares of their low-cost rentals. In the Dallas area, about one in five tax-credit-built apartments could lose its affordability protections by 2027, according to Moody’s. Chicago and Houston also look especially vulnerable to losing a large amount of their affordable housing.
| |
| | | |
