SINGLE-FAMILY RENTALS: CALM AMONG STOCK AND BOND VOLATILITY
BONDS
STOCKS
SFR
40%
30%
20%
10%
0%
-10%
-20%
MY TAKE
-30%
Creative Investing for Passive Returns
-40% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
SOURCES: Roofstock, S&P 500, Federal Reserve, 10-Year U.S. Treasuries, Zillow home prices, U.S. Census Bureau average rents for SFR detached houses.
EXPLORING THE SINGLE-FAMILY RENTAL SECTOR IN A POTENTIAL ECONOMIC DOWNTURN.
BY GARY BEASLEY A fter more than 10 years of a bull market, investors are increas- ingly considering how to prepare for the potential impact of the next eco- nomic downturn — especially those concerned about volatility. While they shouldn’t panic (from my point of view, the next recession will be more of a dip than a crash), many inves- tors are looking for an intelligent way to adjust their investment portfolios to be well positioned to weather the next downturn. It’s clear that, as we approach notching the longest eco- nomic expansion in recent history, a little defensive thinking is in order.
Notably, during the Great Recession (from 2007 to 2011), SFR rents never declined on average despite a national decline in home prices of over 30 percent and stock market losses that took four years to recoup.
that the two measurements are unrelated. For this reason, SFR is considered a good defensive play for those investors who may be nervous about the outlook for the stock market and are hedging their bets by seeking a portion of their returns from current yield as opposed to relying principally on changes in stock prices. SFRs have a strong track record, even during periods of stock market declines. Notably, during the Great Recession (from 2007 to 2011), SFR rents never declined on average despite a national decline in home prices of over 30 percent and stock market losses that took four years to recoup. This meant that owners of those rental homes generally experienced improving yields on their invested capital, despite home
SFR is considered a good defensive play for those investors who may be nervous about the outlook for the stock market and are hedging their bets by seeking a portion of their returns from current yield as opposed to relying principally on changes in stock prices.
gle-family rental (SFR) sector pres- ents a potentially compelling option when the stock market feels over- heated or a recession may be on the horizon. As perhaps the fastest-grow- ing segment of the US housing market, SFR properties are unique because they have characteristics of both bonds (current income) and stocks (appreciation potential), with returns historically being similar to those generated by the stock market, albeit with much less volatility. A proprietary study from Roof- stock showed that SFR returns are largely uncorrelated to equities, meaning they don’t move in lock- step. Correlations between S&P and SFR returns from 1994 through 2008 are at near zero, meaning
prices falling. What’s more, some 9+ million families lost their homes between 2006 and 2014, which bolstered fundamental demand for rentals as these families suddenly became long-term renters. THE NEWRENTER PROFILE It’s clear that the profile of the average renter has changed, too. According to a recent study from
Freddie Mac, Millennials and Boomers are choosing to opt out of home ownership for financial reasons and/or lifestyle preferenc- es. Both demographics appreciate the greater flexibility, mobility, and typically lower total monthly costs of a renter lifestyle, and also prefer the privacy of a home as opposed to apartment living, which in turn encourages tenants to stay longer. With the market still tight for those
THE SFR OPPORTUNITY Investing in the burgeoning sin-
16 think realty housing news report
august 2019 17
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