Construction in this sector has risen significantly over the last year, but caution must be taken when looking at trends in the single-family rental (SFR) market as starts are still disappointing.
Housing starts among single-family homes built-for-rent increased to approximately 9,000 for the third quarter of 2015, up from about 7,000 during the third quarter of 2014, data from the U.S. Census Bureau’s Quarterly Starts and Completions by Purpose and Design and National Association of Home Builders (NAHB) analysis showed.
“The single-family built-for-rent market is a small portion of the total market, so care must be taken when identifying trends,” NAHB stated.
The single-family homes built-for-rent market share on a one-year moving average is at 3.9 percent of total single-family starts for the third quarter of 2015, the reports found. The 3.9 percent share is higher than the historical average of 2.7 percent, but much lower than the high of 5.8 percent in early 2013.
Although this market has seen substantial growth, single-family starts built-for-rent remain on the low side at 28,000 homes started during the last four quarters, the NAHB says.
A confluence of factors has created the "perfect storm" for sustained growth in the single-family rental market, according to one expert in the Securities Lab of the Inaugural Five Star Institute Single-Family Rental Summit in Las Vegas in October.
Those factors include higher mortgage rates, tightening credit standards, rising home prices, an increased number of rental options, ever-increasing student loan debt, and the number of household formations to building permits combined with declines in income growth, distressed sales, personal savings rate, and the overall desire to earn a home, said Chris Crippen, managing director for US Residential Asset Fund.
"This is all leading to the perfect storm for sustained growth," said Crippen, who has worked as an analyst, asset manager, and executive for Wall Street REITs, the FDIC, and Fannie Mae before founding US Residential Asset Fund in 2010. "At the FDIC in 2007 and 2008, the question was 'How long will REOs last?' Then all the REO agents went into the investment space. How long will that last? Who knows. We're in an artificially suppressed interest rate environment right now. Trends are good. We're in a perfect storm for sustained growth. I could say for the next five years all looks great and we'll check back then. If I had to put a number on it now I'd say we're in the third inning. It's not too late to get in."
Rental rates and income yields continue to rise in the single-family rental market, affecting how real estate investors target purchase opportunities and how much landlords make on average. RentRange, a provider of rental market intelligence, recently released data which helps investors define and uncover opportunities nationwide.
The Cape Coral, Florida metro came in first on the list with the largest change in third quarter rent year-over-year at 23.6 percent and an average yield of 9.1 percent. Sacramento, California (17.6 percent/6.6 percent); North Port, Florida (17.2 percent/9.7 percent); San Francisco, California (17.0 percent/5.6 percent); and Charleston, South Carolina (16.5 percent/9.0 percent) wrapped up the top five.
“We continue to see substantial opportunity in real estate investing, but strengthening real estate markets in many regions require investors to be more informed before buying an investment property and rehabilitating it in order to achieve their desired return ,” said Walter Charnoff, CEO of RentRange and Investability.