Single-Family Rental Growth Likely to Continue

Michael Tucker mtucker@mba.org

August 13, 2019


The single-family rental market should experience continued strong growth through the second half of 2019, said Arbor, Uniondale, N.Y., and Chandan Economics, New York.

"The SFR market stands to benefit from absorbing the excess demand of forming families that cannot yet make the jump into ownership," the comapies' Single-Family Rental Investment Trends report said. "The introduction of new SFR lending products and a growing filtering process between bespoke investors and institutional property managers are improving the commodification and liquidity of the SFR market as a whole."

The report said loan-to-value ratios on SFR mortgages rose from their 61.2 percent low in 2013 to a post-recession high of 68.6 percent in late 2017. But lenders have grown more conservative since then in underwriting SFR mortgages and LTVs have mostly fallen since then, with limited exceptions. Through the second quarter, SFR LTVs averaged 62.3 percent, down from 65.6 percent at this time last year.

The report called SFR underwriting well balanced currently as originators weigh concerns about a potential recession against the sector's long-term positive outlook. "All else being equal, the SFR sector continues to benefit from institutional consolidation and economies of scale," the report said. "Even if the economy begins to experience a slight slowdown, the SFR market should enjoy moderate-to-strong growth due to solid fundamentals."

SFR occupancy rates ticked up 0.6 percent to 93.4 percent in the second quarter, compared to 80 to 85 percent early in the financial crisis. "In the years that followed [the start of the crisis], occupied rental homes became increasingly liquid with the introduction of dedicated SFR exchanges and as the availability of vacant, foreclosed homes dwindled." Both those factors substantially increases occupancy in SFR properties. "Looking ahead, as builders are gaining confidence in the SFR sector, occupancy rates may see further downward pressure," the report said.

Renter demand for SFR assets currently outpaces the sector's ability to convert existing residential supply, the report said. To address this, some homebuilders and SFR operators have turned to build-to-rent strategies rather than buying existing houses.

The report cautioned about the current economic cycle's extended length and said SFR asset price appreciation would likely slow if the market corrects. "[But] operating income would likely strengthen, all else being equal [if a downturn should occur]," it said. "The SFR asset class is well positioned to withstand variations in the business cycle and should continue to perform favorably over the medium- to long-term."

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