Single-Family Rental Market Stays Strong

With 43 million house renters across the country, business for now is good for single-family landlords.

As higher home prices and low housing inventories hamstring the purchase housing market, single-family home rentals appear to be doing brisk business, said HouseCanary Inc., San Francisco. The company’s second quarter Rental Investment Index showed the overall U.S. single-family rental market continued to show strength, averaging 8.0 percent nationwide.

At a more granular level, however, the report showed wide disparities in single-family rental markets. State by state, for example, effective yields in New England and on the West Coast were suppressed by rising home values and far outpaced by effective yields in the Midwest. Despite this, effective yields on the coasts did grow slightly over the second quarter, bucking expectations that home price appreciation would outpace rent growth over this period (though it still may over the long term).

In the Midwest and the South, HouseCanary said high effective yields only grew further, led by Mississippi, Indiana and Ohio. All three eclipsed 12.0 percent effective yields on average, higher than any state in the second quarter, led by Mississippi at 12.9 percent.

“The two regions are still the top performers nationwide,” the report said. “The lake states have not quite reached the high average yields seen in the Midwest and South, but are still comfortably above most coastal states.”

Of the top 50 metro areas, 28 surpassed the nationwide average Effective Gross Yield of 8 percent in the second quarter. Rochester, N.Y., the national leader in Effective Gross Yield, outpaced Memphis, Tenn. by 320 basis points and more than doubled the national average. Unsurprisingly, the bottom of the list is flooded with MSAs from California, where the growth in housing prices has consistently outpaced growth in rents.

The report also noted tremendous disparity among individual metros; for example, the top Zip codes in St. Louis generated nearly 30 percent effective gross yield, while the lowest generated just 5 percent.

“This incongruence in yields points to the cyclical variation across the country, with some markets deep into cap rate compression and other markets still experiencing yield expansion,” the report said.

Last week Zillow Inc., Seattle, reported while apartment rents increased across the country, market-rate rents for new renters increased more than rents for renewing tenants.

The Zillow analysis of 2015 rent data by the Census Bureau found annual market-rate rent increases between 2014 and 2015 equaled 5.6 percent, compared to 3.6 percent for renewed leases. People who had moved in the prior year paid $3,946 more on average in 2015 than renters who stayed in the same unit for the prior five years.

Zillow said more than half of renters who plan to move in the next three years expect to move into another rental unit. It reported 43 million renter households across the country, up by nearly 4 million compared to five years ago, the result of recent household formation taking place on the renter side rather than the homeowner side.

“Many Millennials are now moving from their parents’ homes but do not have enough savings to buy their own home, and young adults are also renting longer than ever before buying,” Zillow said.