INVESTMENT STRATEGY
SFR TRENDS
Trends Impacting Single-Family Rental HERE’S WHAT THE CHANGES IN THE HOUSING MARKET MEAN FOR INVESTORS.
by Kevin Ortner
ousing prices and rents have been on the rise in recent
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RISING HOUSE PRICES According to the S&P CoreLogic Case-Shiller Index, the cost of buying a single-family home jumped more than 20% nationwide in April 2022 compared to the same month last year. There’s no doubt about it: Housing in many markets is hot and only getting hotter. Is now a good time to own SFR? Definitely. But, if you’re asking whether it’s a good time to buy, then the answer is: It depends. There are many different opportunities out there, and some are better than others. You’ll want to carefully consider the local market conditions and the viability of the property in question. Then run the numbers. Your goal is to determine whether the property will generate the returns you want. RISING RENTS Along with home values, rents are also rising at a steady pace, which is good news for investors. According to the Single-Family Rental Investment Trends Report from Arbor Realty Trust, occupancy levels in SFR rentals are nearing all-time highs. CoreLogic stated that the average annual rent price gains for SFR increased to 7.8% in 2021 from 2.6% in 2020.
RISING INTEREST RATES With interest rates rising, experts are forecasting fixed-mortgage rates for a 30-year loan will vary from 5% to 7% at the end of the year. Will this lead to fewer people buying homes? It could undoubtedly impact some, especially first-time buyers who won’t have the benefit of accrued equity to roll into their next home. Although this might mean it’s harder for some investors to buy SFR, it would also mean even more renters will be looking for a home. RISE OF BUILD-TO-RENT One major trend we’ve seen making waves with investors is build- to-rent (BTR) SFR housing. With the cost of housing soaring in many metro areas and secondary markets, some SFR investors are finding it makes more sense economically to invest in purpose-built rental housing rather than put money into existing (and aging) traditional housing stock. According to some estimates, investors are on track to put roughly $40 billion into BTR development during the next 18 months. RISE OF NEW TOOLS AND TECH Finally, we’re seeing the rise of new tools and tech in the SFR space. Everything from automated
years. Interest rates have followed suit in recent months. Faced with a volatile market, first-time buyers are dealing with increased challenges to get on the housing ladder, which could lead to an increased demand for rentals in some markets as cash-strapped buyers look to rent instead. This situation also has potential to limit, to some extent, investor activity in the space. How much of an impact it will have remains to be seen. One thing is certain: People will always need homes, and investors continue to invest in single-family rental (SFR). Of course, how they’re investing has shifted over the last few years. Today, we’re seeing a great deal of activity in the build-to- rent space. How investors manage their portfolios is changing as well, something that’s helped usher in the rise of SFR as an asset class, recognized for its excellent yields in terms of immediate cash flow and long-term appreciation. What’s happening this year? Should investors hold tight or invest in SFR? As always, that depends a great deal on the local market and the property in question. Let’s break things down and look at some big changes we’re seeing in the housing market and investor space, and what it all means for investors.
62 | think realty magazine :: november – december 2022
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