Housing market trends fuel single-family home rental growth

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Homebuilders and other real estate companies are increasingly betting that homebuyers will be disappointed by the lack of homes for sale and runaway prices to rent out their piece of the American Dream.

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LOS ANGELES – Homebuilders and other real estate companies are increasingly betting that homebuyers will be disappointed by the lack of homes for sale and runaway prices set to rent out their piece of the American Dream.

While individual homeowners and mom-and-pop investors still account for the vast majority of single-family rental homes, homeowners have pushed ahead with the construction of new homes being built for rent this year.

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In the third quarter, builders added 16,000 single-family homes up for rent. According to an analysis of U.S. Census data by the National Association of Home Builders, the highest quarterly total of housing for built-to-rent homes begins at least in 1990.

The trade association analysis only includes homes that builders are going to hang and rent. This does not include homes being built to be sold to real estate investment trusts or to investors who plan to rent properties.

While those rental homes account for only 5.4% of all single-family housing starting in the third quarter, builders are doubling down on the rental model, with some already more homes for rent for investors or corporate landlords. aim to create. Potential homeowners continue to struggle to find affordable properties to capitalize on.

“Traditional builders are finding it very difficult to do entry-level housing,” said Ali Wolf, chief economist at Zonda Economics, a real estate industry tracker. “The build-to-rent space serves its purpose as entry-level housing in a market where new homes at a reasonable price point are few and far between.”

Rising home prices and fierce competition for relatively few affordable homes for sale are pushing the limits of affordability for many buyers. According to the National Association of Realtors, the median price of a previously occupied U.S. home rose to $353,900 in October, up 13.1% from a year earlier. Homes are sold within days of being put up for sale.

However, these trends have been good news for landlords. Rents for U.S. single-family homes rose 10.2% in September compared to a year earlier, according to real estate information company CoreLogic. The firm excludes apartments from its single-family home rental data, although it does include condominiums and townhome rentals.

CoreLogic expects rents to continue rising through the end of this year, citing strong demand, a short supply of homes for rent and a strong job market.

Recent quarter earnings from two of the nation’s largest owners of publicly traded single-family homes for rent underscore a favorable outlook.

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

BTIG analyst James Sullivan reiterated his “buy” rating for both real estate investment trusts, or REITs, noting that housing market trends, including supply chain challenges and rising labor and material costs, slow the pace of construction for homebuilders. are, remain “very friendly” for single family rentals.

According to the Commerce Department, construction of new U.S. homes was progressing at a seasonally adjusted annual rate of 1.52 million units as of October. This is an increase of 0.4% from the year-ago rate. But single-family home openings fell 3.9% from September to October and were down more than 10% from last year.

The number of housing for built-for-rent houses remains low relative to newly launched homes for sale. All told, according to the NAHB, builders broke ground for 47,000 homes for rent in the past four quarters, a 17.5% year-on-year increase. In the same period, builders demolished 1.14 million single-family homes.

Some of the biggest home builders in the country want to take advantage of the demand to build houses on rent.

Some sell homes to investors or companies that want to take over communities already full of tenants. In July, PulteGroup announced a deal for Invitation Homes to build and sell approximately 7,500 homes over the next five years.

Dr. Horton is building apartment complexes and also building single family rental home communities. This month, it estimated that its rental operations would generate more than $700 million in revenue from rental property sales during the current fiscal year. Horton also said that it expects to increase its rental business by more than $1 billion over the same period.

This spring, Lenar formed a venture with a number of institutional investors, aiming to spend more than $4 billion to buy new single-family homes and townhomes from homebuilders and potentially other builders, and then buy them. To rent.

“It’s really evolved over time, but the star of the real estate show today is the build-to-rent space,” Wolf said.

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