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SFR Rent Growth Continues to Hit New Heights

Year-over-year rent growth in the single-family rental sector is closing in on double digits with demand remaining white hot.

Investors of all types have been drawn to investment-grade single-family rental properties and their eye-popping fundamentals all year and there’s no end in sight for the sector.

Single-family rents grew 9.3 percent in August 2021, compared to the year before, according to CoreLogic’s Single-Family Rent Index. That’s the fastest year-over-year growth in rents in over 16 years. It’s four times faster than the year-over-year growth in rents the year before, during the first pandemic summer. It’s also well above the rate of rent growth in the years before the pandemic, when rents tended to grow between 2 percent and 4 percent per year.

“Demand for SFR is off the charts, and we expect it will remain that way for a long time,” says Jonathan Ellenzweig, chief investment officer for Tricon Residential. “We get 5,000 to 6,000 calls per week from people inquiring about leasing only 300 homes available at any one time. And that does not include an equal or greater number of online leads.”

During the coronavirus pandemic, many people could work from home moved their homes farther away from expensive downtowns, often seeking more living space and warmer weather. But single-family rents continue to rise even though the restrictions created to slow the spread of the virus have begun to ease. The demand has been so great, many single-family real estate investors have turned to building new ground-up communities.

The shortage of homes for-sale is forcing more people rent—driving rental prices higher. “At lot of people are getting priced out to the market for for-sale houses and having to go to rentals,” says Selma Hepp, deputy chief economist for CoreLogic.

These renters are still looking for roomy living situations. Rents for detached rental homes grew twice as fast as rents for attached single-family rentals, like townhouses, duplex homes and condominiums. Annual rent growth for detached rentals was 11.7 percent in August, compared with 6.4 percent for attached rentals, according to CoreLogic.

Rents rose most quickly in Southern metropolitan areas. Of the 20 large metro areas studied by CoreLogic, annual rents grew most quickly in Miami, Phoenix, Las Vegas, Austin, Texas, and Dallas. These metro areas were already growing quickly before the pandemic.

“Most of the demand trends impacting the single-family rental industry were already in place… including the aging of the millennial cohort and mass migration to the Sun Belt states,” says Tricon’s Ellenzweig. “The Covid-19 pandemic has served as an accelerant to these trends.”

The Sun Belt currently has about 40 percent of the U.S. population, but is expected to see over 60 percent of the country’s population growth, says Ellenzweig. “These markets are expected to continue to see an influx of people—either through migration or net family formation—driving demand for housing,” he says. “If you can work anywhere, why not live in the suburbs, particularly in the Sun Belt, where the weather is better, taxes are lower, and housing is more affordable?”

Rents are also growing again in crowded, Northern cities. After shrinking for 14 months, single-family rents in Boston grew in August compared to the year before as renters return to the metro for in-person work and school, according to CoreLogic.

“Most of the single-family rental market in Boston is occupied by students,” says CoreLogic’s Hepp. “As the students came back, demand for rental houses came back too.”

Rents have also begun to grow once again in the San Francisco Bay Area as more workers are coming back to the office, for at least a few days of the week, according to CoreLogic. “People are moving back to live at least a little closer,” says Hepp.

Of all of the for-sale homes bought and sold in the second quarter of 2021, investors intending to offer the homes for rent bought nearly a quarter (24 percent), according to CoreLogic. That’s up from 18 percent in 2020. It’s also the biggest share that investors have taken of the market for for-sale homes in at least ten years.

“There was been a surge in investor activity,” says Hepp. Investors have been opening their wallets to buy single-family rentals even though home prices have rising through the roof. “Cap rates have been coming down because of prices going up.”

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