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Top SFR Trends of the Past Decade

Nearly a decade ago, Visio Lending faced a pivotal strategic decision. Our nation’s economy and real estate markets were healing, albeit slowly after the Great Recession. Consumer residential mortgage finance was limited to the middle of the credit fairway. Financing for single-family residential, or SFR, investors had largely disappeared. 

Visio Lending, founded in 2012, was working closely with real estate investors, providing them with short-term financing to purchase foreclosed homes to renovate and either resell or convert to rentals. The company had to decide whether to build a national residential transition lender (fix & flip lender), or lean into a nascent but promising opportunity to finance the many thousands of small- to medium-sized investors that own the more than 23 million one- to four-unit SFR rentals. This latter opportunity now is known as investor DSCR or rental loans. Visio Lending has originated $2 billion in DSCR loans since 2015. Along the way, there have been many innovations and shifts in the market. Here are nine significant SFR rental trends witnessed in the marketplace over the past decade. 

In 2012, there was more supply of housing than demand. So not true today.
Coming out of the Great Recession, there were more homes in a number of major markets than people to buy them. A Redfin report shows that in February of 2012, nationally there was a 6.8 month housing supply. Currently, the housing supply is at a record low nationally of only 1.2 months. By some measures, we have a housing gap of 3.8 million units today, more than two times the equivalent measure in 2012. New construction is accelerating, but it likely will take quite some time before we find more equilibrium between housing supply and demand. 

Demographics have shifted with baby boomers reaching retirement and millennials getting married and buying homes.
Baby boomers, typically defined as those born between 1946-1964, have driven consumer preferences,  jobs and housing markets for the last several decades. Now they are in the heyday of their retirement, with millennials rapidly taking their place. A side-by-side comparison of the 2013 NAR Home Buyers and Sellers Report vs. the 2021 NAR Home Buyers and Sellers Report further illustrates these points. In 2013, millennials made up a mere 28% of homebuyers, whereas today, they have grown to 37% of the market. 

Non-QM mortgage originations have grown steadily, including both consumer mortgages and investor DSCR loans.
Back in 2012, the market for residential mortgages was limited primarily to agency finance. Over the past decade, we’ve seen the rise of non-qualified mortgage, or non-QM, lending. Non-QM includes consumer mortgage types, such as “near miss” loans, bank statements loans, and others. Non-QM also includes investor DSCR loans which are mortgages where the borrower qualifies primarily on the basis of their credit and the cash flow that the underlying rental property will generate. Over the last several years, capital markets have grown increasingly comfortable with non-QM loan products. According to CoreLogic, the non-QM share of the housing market has doubled since 2020, and accounts for 4% of the mortgage market. 

Demand for SFR rentals has increased as several factors push families toward rentership.
RCLCO Real Estate Consulting highlights multiple factors driving a trend toward rentership. Millennials are entering prime housing-formation years and are largely outpriced from home-ownership due to student debt or rising prices and low inventory. Other millennials opt for the flexibility rentership allows, including low maintenance and convenience. Additionally, the aftermath of COVID has people either relocating or suffering from added financial stress. Regardless of the reason, there is a need for larger rentals to accommodate families. 

SFR rentals became an institutional asset class with several public companies.
A recent article from Seeking Alpha investment community noted that “institutional funds are pouring into single family rental investments” with Invitation Homes being the first and largest company. American Homes 4 Rent is another well-known player on the market. A NAR Research report further confirmed this trend. Institutional SFR buyers (defined as those investing through a legal entity) made up 13.2% of the housing market in 2021. 

Build-to-rent has emerged as a viable strategy.
In 2012, new residential construction financing existed primarily for apartment buildings and owner occupied SFR. Now, according to RentCafe, build-to-rent has become the “hottest trend in housing” with construction on rental homes doubling since 2021. RentCafe estimates there are 90,000 such SFRs in the U.S. across more than 720 communities.  

Short-term rentals have grown in popularity. Airbnb went public, and HomeAway/VRBO was bought by Expedia.
Airbnb has grown in popularity every year, according to Forbes. The company went from hosting 30 million unique guests in 2017, to 41 million unique guests in 2018, and then 54 million unique guests in 2020. And despite COVID, Airbnb went public in 2020 with a valuation of $42 billion. 

HomeAway and VRBO took a similar trajectory to Airbnb. VRBO was founded in 1995 and acquired by HomeAway in 2006. Both groups were then acquired by Expedia Group in 2015. 

During this time, STR use cases have proliferated to include traditional vacation rentals, furnished medium-term stays, business retreats and others. STRs are particularly popular with Millennials and Gen Zs. 

National bridge and fix and flip lenders have emerged into the market.
Ten years ago, what was known as “country club money,” was the main option for fix and flip or residential transition loans, as they’re now known. Today, we have national, institutional lenders offering these products at attractive rates. This type of financing is essential for investors to renovate and restore the nation’s aging housing stock. In 2019, the U.S. Census Bureau estimated the median age of U.S. owner-occupied homes was 39 years. 

More than $60 billion in venture capital investments have been made in real estate and mortgage technology.
Zillow estimates the total value of U.S. housing at $43.4 trillion, more than double the value a decade ago. Real estate is one of the remaining brick and mortar industries with inefficient processes. Think about closing and appraisal procedures. However, that is changing with the rise of proptech companies such as Redfin, Zillow, and OpenDoor. According to Statistica, venture capitalists have invested more than $60 billion in proptech ventures since 2012, with most of that coming in the past three years. 

Even in the relatively slow moving SFR market, so much can change in a decade. This is an exciting time to watch the market evolve, and it will be fun to see what other innovative trends emerge over the next decade. 

About Author: Jeff Ball

Jeff Ball is CEO of Visio Lending, responsible for setting the company's overall strategy and direction. Prior to forming Visio, Jeff founded Visio's predecessor company, Econohomes. He previously served as Global Head of Semiconductor Investment Banking at JP Morgan, where his clients included some of the largest tech companies in the world, including Intel and Texas Instruments. Before JP Morgan, he was a corporate securities attorney at Gray Cary Ware & Freidenrich (now DLA Piper). Jeff received his JD and MBA from Santa Clara University. He received his undergraduate degree in Economics and Theology from Georgetown University.

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