The single-family rental (SFR) market in America has gained momentum in the last couple of years as the homeownership rate has fallen to nearly a five-decade low. The greater demand for SFR housing has resulted in an increase in the price of rents, which means greater opportunities for investors looking to either enter or expand in the SFR market.
Data released by Altisource’s RentRange on Wednesday ranked the top 25 Metropolitan Statistical Areas (MSAs) in the United States according to the average rental rate increase year-over-year in the fourth quarter of 2015. RentRange also identified the average gross yield (which demonstrates return on investment from a rental property prior to operating costs) generated by rental properties in those markets.
“The single-family rental market remains strong across the U.S. as the homeownership rate continues to decline and a higher percentage of the population migrates to rental housing,” said Walter Charnoff, CEO of the RentRange business. “As the real estate market continues to improve, we are seeing significant rental price increases in many markets, which bodes well for investors in this space.”
Markets throughout the South region proved to be the hottest places for investors, according to the RentRange data. Four states in the South region—Florida, Louisiana, Arkansas, and Tennessee—combined for eight of the top 10 markets with the largest rental rate increases from Q4 2014 to Q4 2015. Markets in the South also accounted for the highest gross yield among the top 25 MSAs.
Three Western states (California, Washington, and Hawaii) contained markets that combined for nine spots on the list of top 25 markets with the highest rent increases, according to RentRange. Gross yields in these Western markets have consistently been among the lowest on the list of top 25 hottest rental markets, however. Home prices in West markets, which are the highest in the nation, are suppressing gross yields, according to RentRange.