Low Unemployment Translates to Strong Single-Family Rent Growth
Rent prices in single-family rental properties increased 2.9 percent year-over-year in March, in part due to strong employment figures, reported CoreLogic, Irvine, Calif.
The firm’s Single-Family Rent Index showed a 2.7 percent national rent increase one year ago. “The lowest unemployment rate in 50 years, combined with strong housing demand, have contributed to increasing rents across the country,” said CoreLogic Principal Economist Molly Boesel.
Boesel noted properties with rent prices below 75 percent of the regional median increased 3.5 percent year-over-year compared to a 2.4 percent increase in higher-end properties with rent prices exceeding 125 percent of the region’s median.
Low rental home inventory relative to demand fueled single-family rent price growth, CoreLogic said. SFR prices have climbed between 2010 and 2019, but year-over-year rent price increases have generally slowed since peaking at 4.1 percent in February 2016 and have stabilized over the last year to a 3.0 percent monthly average.
Among the 20 largest metro areas, Phoenix had the highest year-over-year increase in single-family rents in March at 7.4 percent compared to March 2018, followed by Las Vegas at 6.9 percent, CoreLogic said. For the second consecutive month, Miami experienced the lowest rent increases among large metros at 0.4 percent–its lowest year-over-year rent growth since December 2017.
Arbor, Uniondale, N.Y., reported occupancy rates on transacted SFRs have increased from the low- to mid-80s in the economic recovery’s early days to the mid-90s since then. “This secular rise in part reflects the housing market’s recovery,” the company’s SFR Investment Trends Report said. “The runup in occupancy may also be a result of new listing services meant entirely for SFRs. These new platforms circumvent the necessity to sell vacant homes through traditional multiple listing services geared toward owner-occupants.”
SFR cap rates peaked at 11.1 percent when home prices bottomed out in 2012, Arbor said. Since then, cap rates have remained between 6.2 percent and 7.6 percent, “with a marked lack of volatility,” the report said. SFR cap rates stood at 6.4 percent in the first quarter, down 105 basis points from a year earlier.
Loan-to-value ratios on SFR mortgages rose from a 60.6 percent low in 2013 to a post-recession high of 70.2 percent in late 2017, Arbor said.
Despite a steadily improving economy, concerns about the business cycle timing are re-emerging, Arbor said. “These concerns have translated to conservative underwriting on SFR mortgages,” the report said. “Since early 2018, loan-to-value ratios have steadily fallen.” SFR property LTVs averaged 63.6 percent in the first quarter, down from 69.4 percent this time last year.
