The Impact of Investors on the Single-Family Rental Market and Housing Affordability

Need fast and accurate production data with contact information and social search?

Maybe you want to build a list and track professionals you would like to work with.

Try RETR and thank us later.

Your manager will want this too!

Click HERE to try for FREE.

The Impact of Investors on the Single-Family Rental Market and Housing Affordability

The single-family rental (SFR) market has experienced significant changes in recent years, with investors playing an increasingly prominent role. As of December 2023, CoreLogic reported that investors bought nearly 29% of all SFRs, a figure projected to exceed 30% in 2024. This trend has been fueled by several factors, including the Federal Reserve’s rate hikes and the resulting high mortgage interest rates, which have deterred some hopeful buyers from entering the market. Consequently, the demand for rentals has increased, and investors are seizing the opportunity.

The Impact of Investor Purchases on Property Values and Rents:

Investors’ growing presence in the SFR market has notable implications for property values and rents. Unlike individual homeowners, investors are less concerned about property values, as they plan to hold the properties for an extended period. Additionally, the acquisition cost is the highest expense an investor will incur, as inflation makes fixed payments cheaper over time, and rate and term refinancing can further reduce payments. Moreover, the certainty of rent increases offsets the payment and can eventually surpass it, making even overpriced properties a great investment for investors.

The Relationship Between Home Buying and Renting:

As potential home-buyers face the challenge of expensive properties, they may turn to renting as an alternative. However, it’s essential to understand that while the rental payment might initially be lower than a mortgage payment, this is only temporary. Rents have historically increased year over year, with only the rate of increase varying. Even when it appears that rents are going down, they are actually just not rising as much as in the previous year, as long as they remain above the break-even point.

Existing Home Sales and New Listings:

Despite the sluggish home sales due to rising mortgage rates, the steady flow of new listings suggests that additional sizeable sales declines are unlikely. This can be attributed to the relationship between new housing starts and new home sales. As long as housing starts exceed housing sales, inventory will grow. Currently, we are in a positive inventory growth pattern, which is encouraging for the market.

The Path to a Normal, Healthy Market:

To achieve a normal, healthy housing market, it’s crucial to address the balance between supply and demand. The current total housing deficiency is around 1.5 million units, which is not as severe as some might have thought. However, there is still a long way to go to reach a balanced market.

Conclusion:

The growing presence of investors in the SFR market has significant implications for property values, rents, and housing affordability. While the current market conditions may present challenges for individual home-buyers, it’s essential to adapt and learn how to succeed in this market. The biggest obstacle to success in this market is often one’s mindset. By understanding the dynamics at play and maintaining a positive outlook, it is not only possible but probable to thrive in this market.