Furthermore, a new report shows that rent growth was 1.7% y/y as of May, the lowest level since March 2021. List of apartments, a nationwide apartment rental platform. “Year-on-year growth is currently below the average rate from 2018 to 2019 (2.8%) and could decline further in the coming months,” the Apartment List report said. says.
What’s more, the homebuying market has been flat or declining in most parts of the country since the middle of last year, says ATTOM CEO Rob Barber. , “And it’s down in most major markets across the U.S.”
“If home buying continues to get cheaper, it could incentivize households that had previously undercut the market to buy again, thereby reducing demand for rentals,” Barber added. “The result could be flattening rent growth and greater financial pressure. [SFR] landlord.
However, the KBRA report notes that “conventional wisdom” suggests that in a weak housing market with declining home prices, overall homebuyer demand will also decline, increasing demand for SFRs and increasing rents. I am pointing out that I am predicting
The KBRA report continues as home prices rise in a strong housing market. SFR rent growth. “
However, the KBRA report said, “In the current environment, despite declining house prices, rents have flattened and in some cases declined, so this perceived hedging prudent are being tested,” he said.
LD Salmansson CEO of shale, A data integration and insight platform serving major players in the real estate market, including SFR operators. He notes that while the cost of capital is rising for SFR operators, who currently own about 5% of all SFR properties nationwide, “rents are flat, stagnant, or potentially increasing, but slowly It is a pace that has
But Salmansson added, “It’s not the rent slowdown that’s causing the world to slow significantly.” [home]-Purchase rate by institutional SFR players in recent months’, ‘although that’s affecting it’.
“Rather, it’s that there are far fewer people selling it because it’s not selling. [high] That’s the price they’re looking for,” he said. “If the mortgage rate is 2% to 4%, he’s not selling. That’s the biggest cooling effect.
“Decelerating [home prices] means it is still rising…and “[home prices] It’s not justified now given the interest rate, but it’s temporary. It doesn’t last long. “
The slowdown in real estate acquisitions by institutional SFR companies has also impacted key liquidity channels in the institutional SFR sector. According to data tracked by KBRA, there were a total of 15 securitization transactions involving large SFR players worth a total of $10.3 billion last year.
So far this year, a $343 million securitization deal by Progress Residential (Progress 2023-SFR1) closed in late February, according to KBRA data. His second product, Progress 2023-SFR2, which Progress Residential has planned for this year, was recently postponed due to market conditions.
“[Institutional SFR players’] Debt and operating costs are rising.” Beach Point Capital Management, an alternative credit investment firm. “Securitization is not as viable as funding sources [currently].
“There are probably a lot of private lenders that do [more expensive] That might be the solution in the short term until longer term rates become more clear. “
Hunsaker added that headwinds facing the institutional SFR market also include higher home insurance premiums and taxes due to the recent hurricanes that hit Florida, a key market for the SFR sector.
David Petrosinelli is a senior trader based in New York, InsperexTechnology-driven underwriter and distributor of securities operating multiple trading desks .Complete market freeze”
“There are different pockets of capital that can come in,” he added. “The question is whether these deals make economic sense.
“these are [SFR operators] Can companies with deeper funding afford not to use securitization for like three months until the market unwinds?”
The only way SFR businesses can function in today’s high-cost environment is to buy “like old-school real estate” and “in the right location with good demographic trends.” Nick SmithFounder and CEO of Rice Park Capital Managementis a private investment firm serving institutional investors, family offices and high net worth individuals.
“Unless you’re one of the winners who get the equation right, you’re buying property in a market where property values are falling and financing costs are rising,” Smith added. , it makes no sense to me at all.It’s a real business, but I find it very difficult right now.”
If the headwinds become severe enough and continue beyond short-term obstacles, it could eventually lead to a restructuring of the institutional SFR business, Smith added.
“Listen, whenever you are in a difficult environment, there is an impact. Consolidation is one thing that can happen and we see operators consolidate and people go out of business. increase.”
Marvin OwensChief Engagement Officer impact shareA not-for-profit investment firm that manages several socially responsible exchange-traded funds, said that institutional SFR players were exiting the market while a new housing expansion was also underway. said. again. ”
However, Owens stressed that due to inflation and high interest rates, these new homes will not be an option for families who cannot afford market-priced housing. Combined with the shortage of , it’s not a good result for the affordable housing market, even if SFR players’ recent heavy home purchases have boosted home prices in some markets.
“this [the institutional SFR sector] A very important part of the home environment, signs of slowing down, signs of struggling, [impacts] People could be able to find places to live, and that’s not a good sign,” Owens said. will continue.
“So I think this is really a downside in terms of what happens in terms of housing affordability and access.
SFR silver lining
According to ATTOM’s Barber, the SFR market is currently clouded. Despite challenges in the SFR market, ATTOM predicts that the average gross yield on his 3-bedroom SFR properties will increase from 6.7% in 2022 to 7.5% this year.
“The latest national gross return forecast for single-family rentals is below levels a few years ago when they were close to 8% and 9% in 2019 and 2018, but forecast growth in 2023 is down for the fourth consecutive year. followed,” said Barber. “This suggests a brighter outlook for single-family landlords, which should help with rising interest rates and labor costs.”
Kurt Carlton, co-founder and president new westernIt is a private real estate investment marketplace serving approximately 165,000 investors.
“This is a small pool. [of SFR operators] It grew quickly and then froze,” he said. “And when interest rates start to come down a little bit more, they’ll always thaw,” Carlton said. I will come.”