SFR Sector Reaching Supply-Demand Equilibrium
But the sector is also facing “its first period of uncertainty" in 2024.
The single-family build-to-rent sector is establishing itself as a core component of the residential housing market and current conditions are helping it reach equilibrium, according to a new report from Northmarq.
The firm said this is being created by the competitive impact of new construction on operational performance and a more restrictive and increasingly expensive capital environment.
Given the supply and demand dynamics, the absorption momentum (up 35% year over year) is being held in check by high numbers (all-time high) of deliveries today and in the near term. This is limiting rent growth leading vacancy rates upward.
The rising cost of capital will limit new supply and has caused the single-family build-to-rent market to face “its first period of uncertainty,” Northmarq said.
The industry is benefiting from higher costs to buy a home and a “stronger-than-expected” economy “with jobs being added at an above-average pace, and wages are rising.”
Northmarq said that’s often the formula for home sales, but the spike in mortgage rates has led to renters wanting to upgrade their rental housing rather than purchase a first home.
If the economy cools in 2024, capital providers will act more cautiously, Northmarq said, and while lenders are still doing deals, rates are higher, and loan-to-value totals are lower.
The good news is that the Federal Reserve has seemingly stopped its rate-rising cycle and with inflation coming under control, there is optimism.