An outgrowth of the recession and the housing market crash of seven years ago has been a vibrant rental market, with vacancy rates at their lowest levels since the 1980s and construction at a more robust level than it has been in 25 years, according to CoreLogic Chief Economist Frank Nothaft in CoreLogic's July 2015 MarketPulse.
Single-family rentals comprise 40 percent of the rental market, nearly equal with multi-family's share (42 percent) and more than double the 2-to-4 family share (18 percent), according to CoreLogic. Three million detached single-family homes (an increase of 32 percent) were added to the nation's rental stock between 2006 and 2013 due to investors acquiring foreclosed homes and turning them into rentals.
The increased popularity of single-family rentals has prompted industry leader The Five Star Institute to host its first-ever Single-Family Rental Summit in Las Vegas, October 11 through 13. Five Star's summit will provide an education and networking event for private equity, REIT, Institutional/bank, and small/mid-sized investors.
Some markets were affected more than others by the increase in single-family rental stock, even though it was a geographically broad-based increase, according to Nothaft. For example, in two of the areas hit hardest by foreclosures, Phoenix and Las Vegas, the number of single-family homes available for rent almost doubled during the seven-year period. Metro areas like Dallas and Atlanta saw close to 100,000 single-family homes added to the rental stock during that period.
"While the growth in the rental stock has been large, so has been the demand," Nothaft said. "Some of the households seeking rental houses were displaced through foreclosure. Others were millennials who had begun or were planning families, but were unable or unwilling to buy."
Rents are also higher, driven mostly by a strong demand for rental housing, according to Nothaft.
"Strong demand for rental houses has also translated into rent increases, especially in markets with strong employment growth that have attracted younger households."
Areas with traditionally high rents have become even more expensive due to the increase in single-family rents, according to Nothaft. In areas along the Pacific Coast, such as Seattle, Los Angeles, and San Francisco, rents have spiked by 10 percent or more over the last year. Overall, the median increase in rent for single-family homes was 4 percent in the last year, which was higher than overall inflation.
Not all markets saw an increase in rent among single-family detached homes, however. Nothaft cited as an example the Detroit area, where single-family rents declined by 4 percent for a three to four bedroom house over the last year.
"While rents rose in most markets, some were stagnant or declined as demand could not keep up with the additional supply," Nothaft said.
Since household formation among millennials is expected to improve, Nothaft said the outlook for the rental market is robust; many millennials forming new households are expected to rent, whether it's a house or an apartment. The large number of millennials will also ensure that demand for rental housing will remain strong for at least few years, and as they form families, the demand for single-family rental homes will stay strong as well, according to Nothaft.
(Editor's note: The Five Star Institute is the parent company of DS News).