Single-Family Rental Prices Rise Faster Than Owner-Occupied Homes

Tucker, Michael mtucker@mba.org

April 06, 2016


Median single-family rental home prices increased faster than owner-occupied home prices, reported HomeUnion, Irvine, Calif.

SFR home prices grew 5.1 percent last year compared to 1.1 percent for owner-occupied properties. But prices for investment homes averaged $185,500 compared to $236,900 for owner-occupied properties.

"Traditional home prices have peaked in light of stagnant wage growth and a lack of lower-priced properties available on the market," said HomeUnion Manager of Research Services Steve Hovland. "Nearly all of the increase in investment home prices was in the cash sector, where there's still significant demand."

Hovland said February's home price figures highlight the attractiveness of single-family rentals in an uncertain environment. "Since last August, when weakness in the global stock markets began to erase equity, investors have been repositioning their portfolios to hedge against uncertainty," he said. "We're seeing the results in higher investment home prices, particularly in the all-cash segment."

HomeUnion said most buyers use leverage to acquire investment homes while interest rates are low. The owner-occupied price of $236,900 approaches the leveraged-investment price of $239,100.

Hovland said average investment cap rates compressed 40 basis points to 6.1 percent during the 12 months ending in February. Investors accepted first-year returns of 4.7 percent for leveraged transactions.

HomeUnion also analyzed 44 single-family rental housing markets nationwide and reported San Jose, Calif., leads the U.S. with 7.3 percent anticipated rental growth, largely due to healthy job growth and increasingly out-of-reach prices for traditional housing, Hovland said.

Orlando, Fla. ranked second with 6.1 percent forecast rent increase for SFR properties. Hovland called Orlando's strong performance unsurprising given the metro's "furious" economic growth over the past two years. "Tourism has fueled the region's booming economy: Orlando has welcomed more than 60 million visitors, as well as job seekers, annually," he said.

Additional standouts on the list include Charlotte [N.C.] and Austin [Texas], two metros that are "bursting at the seams in terms of economic growth," Hovland said. "Charlotte has one of the fastest-growing populations nationwide, which has sent both rental and investment demand soaring for investment homes." He said he expects Charlotte rents to rise 5.3 percent this year.

Austin's continued dominance as a leading tech hub and employment center helped it move up Home Union's list, with rents projected to rise 5 percent through year's end.

Morningstar Credit Ratings, New York, reported that single-family rental securitization delinquency rates improved for the second consecutive month in February. The average rate among all SFR transactions now stands at 0.6 percent.

Only four of the 24 transactions Morningstar examined showed delinquency rates at or above 1.0 percent. "[SFR] vacancy rates fell across most transactions in February," Morningstar said. "Turnover rates were slightly higher in February than in January, but this may be attributable to an increase in lease expirations over the past two months."

As of January--the most recent data available--retention rates remained flat and cash flows for single-family rental transactions remained sufficient to cover bond obligations, Morningstar said.

The Mortgage Bankers Association will host a Single-Family Rental Finance Workshop in Washington, D.C. tomorrow, April 7. The one-day conference will examine SFR market dynamics and outlook and how loan products are changing to meet demand.

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