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Why single-family rentals are outperforming

Why single-family rentals are outperforming
by Brad Cartier, posted in Newsletter

ATTOM Data Solutions released a new report on the single-family rental (SFR) market, noting that the average annual gross rental yield on three-bedroom properties is estimated to increase by 7.5% this year. That is a jump from 6.7% in 2022 and the first time since 2019 that the figure rose to that level. Counties with the highest SFR annual gross rental yields for 2023 are: 

  • Indian River County, FL (15%)
  • Collier County, FL (14.7%)
  • Wayne County, MI (13%)
  • Mercer County, NJ (12.7%) 
  • Charlotte County, FL (12%)

Of the top 50 rental returns for counties analyzed in 2023, 29 are in the Southern U.S. Rob Barber, CEO at ATTOM, noted: 

“The broader housing market didn’t fare nearly as well in 2022 as it did in 2021. Prices finally hit the wall, at least temporarily. But that appears to be benefitting the growing number of investors around the U.S. who rent out single-family properties…Rents for single-family homes are growing while prices have flattened out, which has helped boost yields for landlords for the first time in at least several years.”

Alby Gallun of UrbanLand reports that the build-to-rent (BTR) market is poised for growth, with an estimated 132,000 homes coming online in 2023, up 11% from 119,000 in 2022. Further, Gallun notes that BTR development will jump to 167,000 units by 2025. 

Kelsi Maree Borland of Globe St comments that the “SFR market quickly became a commercial real estate investment darling over the last few years. And as housing costs increased more than 13% last year, and mortgage rates are now keeping more potential buyers in rentals, demand from growing millennial families looking for spacious homes in quality neighborhoods is feeding the attention.”

Rents have still been increasing according to CoreLogic, but overall national rent growth is slowing. SFR rent growth increased 5.7% year-over-year in January. Orlando continues to lead the U.S. in YoY rent gains at 8.9%. 

Rents still increasing

Source: CoreLogic (April 2023)


Alexandra Both of RentCafe reports that Millennials are now a homeowner majority demographic for the first time in history. Here are some of the highlights of the report:

  • 52% of Millennials own a home, transitioning from renter-majority to owner-majority for the first time.
  • The number of Millennial homeowners increased by 7 million in the last five years, more than triple the number added by Gen X.
  • Millennials are still the dominant renter generation, with 17.2 million renter households.
  • Gen Z is the only renter-majority generation, with a 74% share and 4.5 million renters added in the last five years.

Millennials take highest share of renters

Source: RentCafe (April 2023)

Dana Anderson of Redfin reports that first-time homebuyers are re-entering the market at the fastest pace since May 2022, as the median sale price decreases to -1.8% year-over-year.

According to Celia Fernandez of CNBC, an average of 53% of 2022 mortgage offers went to Millennials. In 37 of the 50 largest U.S. metros, Millennials make up the majority of buyers. These metros had the highest Millennials homebuyer demand:

  • San Jose, Calif.
  • Denver, Colo.
  • Boston, Mass.
  • Seattle, Wash.
  • Austin, Texas
  • San Francisco, Calif.
  • New York, N.Y.
  • San Diego, Calif.
  • Los Angeles, Calif.
  • Washington, D.C.

Giulia Carbonaro of Newsweek comments on a recent report about homeownership for Millennials, noting that “eight out of 10 millennials say they regret buying their first home, having entered one of the most expensive housing markets in United States history.”

Construction slowing

Robert Dietz of the National Association of Home Builders (NAHB) reports that construction labor job openings are increasing, highlighting an upcoming slowdown in new home construction.

Construction labor openings increasing

Source: NAHB (April 2023)

“The count of open construction jobs increased from a revised reading of 283,000 in January to 412,000 in February. This came after a data series high of 488,000 in December 2022. The January data point appears to be an outlier, but the overall trend is one of cooling for open construction sector jobs as the housing market slows and backlog is reduced.”

According to Na Zhao, also from NAHB, residential construction spending dropped 0.6% month-over-month in February. This was the ninth straight month of decline, as elevated mortgage interest rates continued to decrease demand for new homes. Overall, private residential construction is down 5.7% year-over-year.

Specific to multifamily, the National Multifamily Housing Council (NMHC) released its Quarterly Survey of Apartment Construction & Development Activity, noting that 79% of developer respondents reported experiencing construction delays, down from 84% in December 2022, and 97% in June 2022. Material repricing is also slowing, according to NAHB:

“Nearly half of respondents (47%) experienced deals repricing up over the past three months, down from 58% in December and 92% in March of last year. Conversely, 21% of respondents reported deals repricing down, up from 18% of respondents in December and 0% of respondents in March 2022.”

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