A recent report by Alexander Hermann, Research Associate for the Harvard Joint Center for Housing Studies [1], examines investor activity in the single-family rental (SFR) market over the past two decades.
“Single-family rentals have long been an important part of the U.S. housing stock,” said Hermann in the report. “But according to our latest State of the Nation’s Housing report [2], investor purchases of single-family homes reached new heights during the pandemic, particularly lower-cost units and homes in Sunbelt markets.”
In Eight Facts About Investor Activity in the Single-Family Rental Market [3], Hermann keys in on the importance of the SFR market to the nation’s housing stock, and the eight traits the market has exhibited over this time period, including:
- SFRs have long been a substantial part of the rental stock
- Investor activity in the single-family market increased significantly since the start of the pandemic
- Investors are most likely to purchase lower-cost homes
- Investor activity is especially pronounced in Sun Belt markets with strong rent and population growth
- Investor activity increased for investors of all sizes since the start of the pandemic, though much of the growth was driven by large investors
- Rental property ownership is shifting away from individual ownership toward more ownership by business entities
- Large rental operators own a small share of the SFR stock
- SFR construction hit record highs during the pandemic
“By 2021, there were 14.3 million single-family renter households, comprising about 33% of all renters,” said the report [3]. “Despite the more recent declines, there were still 3.5 million more single-family renters compared to two decades earlier.”
The number of single-family renters rose significantly from 2001, when 10.9 million renters were reported, to 2016, when 15.2 million renters were reported, before retreating slightly by 2021, when 14.3 million renters were reported.
In terms of investor activity, it rose quickly in 2021 before peaking at 28% of overall sales in Q1 of 2022. An increase in mortgage rates forced investor activity to settle through early 2023, but it remained above the levels reported in 2019, even as owner-occupant home purchases fell below pre-pandemic levels. As a result, investors still purchased 27% of single-family homes in Q1 of 2023.
By home type, SFR investors in Q4 of 2022, purchased nearly one-third of homes sold in the bottom third by metro area sales price, compared to nearly 25% of homes that sold in the top third.
By location, the Urban Institute found [4] that SFR investors who own at least 1,000 homes had 45% of their single-family holdings in six markets, primarily in the nation’s Sunbelt region of Atlanta, Phoenix, Dallas, Charlotte, Houston, and Tampa.
CoreLogic reported that during the time of the pandemic, investor activity grew for investors of all sizes, but especially for small (three to 10 properties) and larger-scale investors with 1,000 or more properties.
“Demand for single-family living increased during the pandemic and has been sustained by the aging of the large millennial cohort into its 30s and 40s—peak homebuying years, but also the age many households form families,” said Hermann in the report [3]. “At the same time, rising interest rates and home prices have made homebuying less affordable, making single-family rentals an attractive option to many households priced out of homeownership.
Click here [3] for more information or to read the full report, “Eight Facts About Investor Activity in the Single-Family Rental Market [3].”