HomeUnion: Single-Family Rental Market Should Remain Healthy
The single-family rental market should likely remain healthy this year, though increased competition from new apartment deliveries could slow its improvement, said HomeUnion, Irvine, Calif.
HomeUnion Research Director Steve Hovland cited a mix of rental housing supply and demand fundamentals, “low levels of new construction and favorable entry prices, which mitigates risk for investors,” as reasons for SFR-sector optimism.
SFR property vacancy should continue to tighten nationally, reaching the lowest level of the current cycle later this year, Hovland said. He noted that Census Bureau figures indicate 434,000 new renter households formed in 2016.
“Strong job growth will encourage new household formation, particularly among millennials that have been living with their parents,” Hovland said. “As most of these new households are unlikely to enter the ownership pool, this will create demand for rental properties.”
In additional, higher home prices, limited inventory, high consumer debt burdens and rising interest rates will limit the number of first-time homebuyers to one-third of the market, well below the 40 percent long-term trend, Hovland noted.
Strong resident retention rates and fewer lease expirations lowered the single-family rental vacancy rate in December–the last data available–said Morningstar Credit Ratings, Chicago. The credit rating agency said it expects the SFR vacancy rate will improve further in the coming months.
The average vacancy rate among single-borrower single-family rental transactions fell 20 basis points month-over-month to 5.1 percent in December, Morningstar reported.
Rents for properties backing single-family rental securitizations rose 3.4 percent in December, Morningstar reported. “This marks the smallest rent increase for 2016 but tracks a similar trend for rent growth seen in 2015, and rent changes may begin to rise next month,” Morningstar said. But it noted that the average delinquency rate in SFR securitizations ticked up to 0.9 percent from 0.6 percent the month prior.
