Rent Growth Moderates For SFR Sector

Rents appear to be cooling for the pandemic-favorite single-family rental asset class, according to new data from Yardi.

National asking rents for the SFR sector increased $2, or 9.5% year-over-year, last month, a decline of 170 basis points from July. Yardi analysts say the slump ”could be a sign of the softening of the housing market, though overall SFR rent levels and occupancy rates remain healthy.”

Occupancy rates ticked down 1% nationally and increased in just 9 of the 35 metros Yardi tracks. Markets where occupancy increased in August include Philadelphia, Houston, Lansing, Pittsburgh, Cleveland, Raleigh, Orange County, San Francisco, and Dallas.

Seventeen of the markets Yardi tracks posted year-over-year rent growth of 10% or more last month, led by Washington D.C. (+40.1%) and Orlando (+39.6%),

“Rent growth in the SFR sector appears to be moderating, and higher financing costs and fewer home sales are likely to reduce the acquisition pipeline,” the Yardi report notes. “However, demand should remain firm as purchasing a home grows further out of reach for more consumers, driving them to the SFR sector.”

Investors appear to be pulling back from acquisitions in the sector, according to a recent report from CoreLogic. Investor interest in purchasing single-family homes has fallen each month since February. And the percentage of single-family home purchases made by investors dropped by 8 points from Q1 to Q2.

“We are in midst of a single-family market correction in many areas of the country. For a large-scale investor to maintain interest, there has to be a sufficient return,” real estate attorney Michael Romer told GlobeSt.com in an earlier interview.  “With record inflation and aggressive rate hikes, everything costs more right now, including real estate. Higher acquisition and construction costs result in higher sale prices and higher rents. This limits the number of interested buyers/renters which in turn limits profitability. This country is in dire need of more affordable housing. Investors and lenders are trending in that direction.”

And as interest and mortgage rates rise, single-family home prices are also softening across the US. While “significant price collapses” are not likely due to ongoing supply-demand imbalances, the recalibrating single-family home market will continue to benefit the multifamily asset class, according to analysts from Marcus & Millichap. The cost of an existing single-family home rose for 24 straight months through May 2022, but that streak ended a few months ago as borrowing costs ticked up substantially over prior lows.

“A near-term price softening in the single-family sector is playing out, as more homes come to market and fewer prospective buyers pursue listings; however, current dynamics do not indicate a bursting bubble,” the firm’s analysts note in a third quarter report on the state of the multifamily sector. “The number of home listings nationwide in July remained nearly 35 percent shy of the same month’s average between 2015-2019. Low inventory will fortify the sector from a significant price collapse.”