Housing market trends fuel single-family home rental growth | Real Estate

HOmebuilder and other real estate companies are increasingly betting that potential homebuyers frustrated with the lack of homes for sale will be satisfied with renting out their piece of the American dream.

While the vast majority of single-family homes are still owned by individual homeowners and mom and dad investors, this year builders have stepped up building new homes for rent.

In the third quarter, the groundbreaking ceremony took place for 16,000 single-family houses that are to be rented. This is the highest quarterly total number of rental home starts since at least 1990, according to an analysis of the U.S. Census data by the National Association of Home Builders.

The analysis of the trade association only includes houses that are occupied and rented by builders. This does not apply to houses that are being built for sale to real estate funds or investors who want to rent the real estate.

While these rental apartments accounted for just 5.4 percent of all single-family homes in the third quarter, builders are doubling the build-for-rent model, with some already aiming to use more apartments to rent for investors or corporate landlords, potential homeowners should continue Have difficulty finding affordable real estate.

“Traditional builders have a very difficult time building entry-level homes,” said Ali Wolf, chief economist at Zonda Economics, a real estate tracker. “The build-to-rent space fulfills its purpose as an entry-level apartment in a market where new apartments at a reasonable price are few and far between.”

Rising home prices and tough competition for relatively few affordable apartments for sale are reaching the limits of affordability for many prospective buyers. The average price of a previously occupied U.S. home rose to $ 353,900 in October, up 13.1 percent year over year, according to the National Association of Realtors. Homes are sold within days of listing.

For landlords, however, these trends are good news. According to real estate information company CoreLogic, rents for US single-family homes rose 10.2 percent in September year over year. The company excludes apartments from its single-family home rental data, even though it includes condos and townhouses.

CoreLogic assumes that rents will continue to rise at least until the end of this year as there is strong demand, low supply of rental apartments and a growing job market.

The latest quarterly results of the two largest listed owners of single-family homes for rent underscore the favorable outlook.

Invitation Homes and American Homes 4 Rent both reported strong third quarter results, driven by rising rents and letting rates near all-time highs.

BTIG analyst James Sullivan reiterated his “Buy” rating for either Real Estate Investment Trusts or REITs, noting that trends in the housing market, including supply chain challenges and rising labor and material costs, are slowing the pace of construction for home builders , “Very” remain cheap “for single-family houses.

According to the Department of Commerce, new US housing construction began at a seasonally adjusted annual rate of 1.52 million units in October. That is 0.4 percent more than in the previous year. From September to October, however, the number of single-family home starts fell by 3.9 percent and by more than 10 percent compared to the previous year.

The number of construction starts for rental apartments remains low compared to newly started apartments that are for sale. Overall, building owners broke ground for 47,000 rental apartments in the last four quarters, an increase of 17.5 percent compared to the previous year, according to the NAHB. During the same period, the groundbreaking ceremony took place for 1.14 million single-family homes.

Some of the largest home builders in the country are trying to capitalize on the demand for rental housing.

Some are selling homes to investors or companies looking to take over communities already filled with tenants. In July, the PulteGroup announced that it would build around 7,500 houses over the next five years and sell them to Invitation Homes.

DR Horton has built apartment complexes as well as single family house communities. This month, the company estimated its rental activities will generate more than $ 700 million in rental property sales for the current fiscal year. Horton also said it expects to increase its investment in its rental business by more than $ 1 billion over the same period.

This spring, Lennar started a company with several institutional investors that plans to spend more than $ 4 billion to buy new single-family homes and townhouses from home builders and possibly other builders and then rent them out.

“It has really evolved over time, but the star of the real estate fair today is the building and rental space,” said Wolf.

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