Thursday, August 17, 2023

Guardian Asset Management

Single Family Rental

Newsletter

From our

SFR Operations Team

Josh Beam

Joshua L. Beam

SFR National Director of Operations 

jbeam@guardianassetmgt.com

314-281-3439

William Lynam

William Lynam

Director of Property Management

wlynam@guardianassetmgt.com

267-201-3616

Single-Family Rental Space Shows

Strong Fundamentals in 2023

Single-family rentals are expected to remain a long-term player in the commercial real estate asset class world — and millennial renters will be the engine that drives that growth. 

That’s the conclusion from Yardi Matrix in the commercial real estate research and data firm’s August 2023 report on the national single-family rental (SFR) space. The report concluded that while high interest rates have tempered rent growth and acquisitions in the first half of 2023, demand for the product remains strong and is expected to thrive as millennials age out and begin to look for an inexpensive alternative to homeownership and apartment rentals. 

Single-Family Rental Rates Have 'Seemingly' Peaked

Rent for single-family homes, nationally, remains historically high despite a slight increase in year-over-year price growth of 0.2%, according to the Q2 National Rental Report from HouseCanary.

That’s good enough, however for the data firm to suggest rents have peaked, though are expected to remain high as potential home buyers continue to hold off entering the purchase market.

“In Q2, we’ve seen the rental market continue to increase in median listings, prices, and days on the market,” Chris Stroud, Co-founder and Chief of Research at HouseCanary.

“While SFR prices only experienced slight year-over-year increases, the surge in available-for-rent inventory suggests that rental prices have reached their peak and are anticipated to trend downwards in the coming months.”

Rent Is Outpacing Wages the Most in These 9 Cities

Traditionally expensive cities like New York and Los Angeles are still experiencing the widest gap between what their residents earn every month and what they pay in rent—known as the rent-to-income ratio—according to a new report by Moody's Analytics, despite slowing rent growth in recent months.

The rent-to-income ratio stood at 30.2 percent by the first half of 2023, with Moody's saying that "spending 30 percent of income on rent is the new normal in many U.S. metros." That means many American renters are what economists call "cost-burdened"—they spend a lot on rent and have less money to spend on health care and food, or to save for buying a home.

Landlords Are Pushing the Supreme Court

to End Rent Control

​Where Does Institutional SFR Growth Go From Here?

For many reasons, institutional investment in single-family rental homes was on a tear, expanding in markets nationwide as potential homebuyers accepted the idea of renting when they couldn’t afford high mortgage rates, couldn’t find a suitable home or didn’t have the funds for a down payment. Renting a home with more space than an apartment, with its own yard and sometimes a shared clubhouse was the next-best choice, and institutional developers were eager to meet their needs. 

But now many of these participants are scaling back so they can focus on improving their operational efficiencies to survive and thrive over the long term, according to Yardi Matrix. Exactly where does this segment stand as it regroups? Institutional SFR investors own about 600,000 SFRs units or 3% of the 17 million single-family rental homes and a small fraction of the 82 million occupied single-family homes. They’re found in both scattered-site properties—homes acquired individually—and SFR communities, most built as rentals.

The national average asking apartment rent was up 1.6 percent in July from its year-earlier level. This rate of increase was down 0.2 percentage points from that reported last month.

Rents in the “lifestyle” asset class, usually Class A properties, were down 0.2 percent year-over-year, while rents in “renter by necessity” (RBN) properties increased by 3.4 percent year-over-year. The chart, below, shows the history of the year-over-year rent growth rates for these two asset classes along with the difference between these rates.