The State of SFR Investments

The market for single-family rental (SFR) securitizations continued to grow month over month. It increased to 4.7% in March from 4.2%, according to the latest Morningstar Credit Ratings report on the SFR market.

The report indicated that the average vacancy rate had declined overall to 4% in March—the lowest since May 2018.

The average retention rate for expiring leases also dropped to 78.9% in February, the latest month available, from 80.4% in January.

Looking at single borrower performance, the report found that lease expirations had increased to 6.6% in March, up from 6% in February. Among the securitizations analyzed by Morningstar, AH4R 2015-SFR1 had the highest lease expirations at 8.3%, up from 7.6% in February. On the other hand, PRD 2018-SFR1 had the lowest percentage of lease expirations at 2.7% followed by PRD 2015-SFR3 at 4.4%.

Among the securitized properties, the report said that rent gains from securitized properties in March trailed rent gains for three-bedroom properties. Additionally, the rent change for three-bedroom properties declined slightly to 5.6% from 6% in February. The rent for four-bedroom properties remained unchanged during the period.

Rent growth for vacant-to-occupied properties increased to 3.9% from 2.5%, the report indicated.

Breaking down the data by metros, the report revealed that Sacramento, California experienced the highest rent growth at 7.6%. This despite a decline from its double-digit growth of 10% recorded in February.

Phoenix registered the second-highest rent growth among metro areas at 7.4%. On the other hand, Chicago continued to experience the lowest rent growth at 2.7% followed by Houston at 2.9%, and the Raliegh-Cary metropolitan area at 3.1%.

Chicago also continued to have one of the lowest vacancy rates, even as rents for properties that were securitized in the metros covered by the report continued to exceed or be in line with the rents for other three- and four-bedroom properties located in the same metro.

Morningstar's April Single-Family Rental Performance Summary has 24 single-borrower deals with close to 86,000 properties.

Click here to read the full report.