Single-Family Rental Asset Prices, Rents Increase

Average prices for single-family rental investment homes rose to $227,000 in January, up 8.7 percent year-over-year, reported Homeunion, Irvine, Calif.

That trend is likely to continue, said HomeUnion Research Director Steve Hovland. “Expect pricing to continue to accelerate in the months ahead,” he said. “Demand for single-family rentals will remain robust throughout 2017. Vacancy is forecast to tighten, reaching the lowest level of the current cycle.”

Hovland noted that the Census Bureau reported that 434,000 new renter households formed in the U.S. last year. “Low inventory, high debt burdens and rising interest rates will limit the number of first-time homebuyers to 35 percent of the market, below the long-term trend of 40 percent [benefitting the single-family rental sector],” he said.

RentRange Data Services CEO Wally Charnoff said the future looks bright for single-family rental investors. “Compared to the third-quarter change in rent, we are seeing the percentage change begin to lessen while rents continue to increase, which should ultimately stabilize demand, keeping single-family rental vacancy rates down,” he said.

RentRange said the McAllen, Texas metro saw the highest single-family rental rate increase year-over-year with a 12.9 percent jump. Cape Coral-Fort Myers, Fla. SFR rents increased 10.9 percent, followed by Portland, Ore. at 10.6 percent.

Charnoff said single-family rental investors should look for stability when investigating a market. “[Focus] on the market’s activity over time to ensure there is a good balance–low historical volatility with a current upswing,” he said.

Morningstar, Chicago, said it expects that the single-family rental vacancy rate will dip in the coming months, “as retention rates remain strong.”

As of December–the most recent data available–the average retention rate for full-term leases exceeded 77 percent, Morningstar said. The single-family rental vacancy rate improved to 4.9 percent partly because of fewer winter lease expirations and a firm average retention rate. The overall turnover rate held steady at 2.4 percent. Morningstar expects that these factors may lead to lower vacancies in the coming months, its Performance Summary report said.