HomeUnion: Single-Family Rental Sales May Slow Over Short Term

Single-family rental real estate investment demand could soften due to higher interest rates–and due to winter weather–reported HomeUnion, Irvine, Calif. 

Freddie Mac, McLean, Va., reported a 37 basis point increase in 30-year loans on Thursday. 

“A surge in the 10-year Treasury rate following the presidential election has shaken lending markets, driving up average mortgage rates to their highest level since the first week of 2016,” HomeUnion said. Analysts have said the Fed will almost certainly raise interest rates at its December meeting, with the market pricing in a 90 percent likelihood of an increase.

But an interest-rate increase would have a “muted” effect on Treasuries because the market has already priced in the upcoming Fed action, HomeUnion said: “Last year, the markets adjusted in anticipation that the Fed would raise rates a full month ahead of the December meeting.” 

HomeUnion called Donald Trump’s election effect on bond rates “largely overblown” because “the market was going to adjust to the near certainty of the Fed’s December rate hike.“

The approaching winter represents a single-family rental property investment opportunity, Homeunion said. Nationally, single-family rental cap rates averaged 6 percent during the winter months last year compared to 5.3 percent in the summer.

Investors pay 7.2 percent less per square foot during the winter as they would during the spring and summer buying season, said HomeUnion Research Director Steve Hovland. 

“Based on seasonal cap rate fluctuations, early winter is the best time to acquire SFRs,” Hovland said. “In many metros, median home prices drop substantially during the colder months, while rent losses were marginal for investors.” 

Hovland noted that for properties that need repair or maintenance before renters can move in, a winter purchase gives owners time to bring the property up to a level that maximizes rents as the spring renting season commences.

“We also discovered that school quality isn’t as important to investors in the winter,” Hovland said. “Buyers interested in neighborhoods with high-ranked schools make up a greater proportion of sales during the summer compared to the winter.”