Housing market trends fuel single-family home rental growth

Nov 24, 2021, 12:11 PM | Updated: 1:18 pm

LOS ANGELES (AP) — Homebuilders and other real estate companies are increasingly betting that would-be homebuyers frustrated with a shortage of homes for sale and runaway prices will settle for renting their slice of the American Dream.

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

In the third quarter, builders broke ground on 16,000 single-family homes slated to become rentals. That’s the highest quarterly total of housing starts for built-to-rent homes going back to at least 1990, according to an analysis of U.S. Census data by the National Association of Home Builders.

The trade association’s analysis includes only homes that builders are going to hang onto and rent out. That excludes homes being built to be sold to real estate investment trusts or investors planning on renting the properties.

While those rental homes accounted for only 5.4% of all single-family housing starts in the third quarter, builders are doubling down on the build-for-rent model, with some already aiming to build more homes for rent for investors or corporate landlords eager to capitalize should potential homeowners continue to struggle to find affordable properties.

“Traditional builders are finding it very hard to do entry level housing,” said Ali Wolf, chief economist at Zonda Economics, a real estate industry tracker. “The build-to-rent space kind of serves its purpose as being 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 stretching the limits of affordability for many would-be buyers. The median price of a previously occupied U.S. home jumped to $353,900 in October, a 13.1% increase from a year earlier, according to the National Association of Realtors. Homes sell within days of being put up for sale.

These trends have been good news for landlords, however. Rents for U.S. single-family homes jumped 10.2% in September from a year earlier, according to real estate information company CoreLogic. The firm excludes apartments from its single-family home rental data, though it includes condominium and townhome rentals.

CoreLogic expects rents to continue climbing through at least the end of this year, citing strong demand, low supply of homes for rent and a strengthening job market.

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

Invitation Homes and American Homes 4 Rent both reported strong third-quarter results, boosted 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 the supply chain challenges and rising labor and material costs that are slowing the pace of construction for homebuilders, remain “very favorable” for single-family rentals.

Construction of new U.S. homes was running at a seasonally adjusted annual rate of 1.52 million units as of October, according to the Commerce Department. That’s an increase of 0.4% from the rate a year earlier. But single-family home starts fell 3.9% from September to October and were down more than 10% from last year.

The number of housing starts for built-for-rent houses remains small relative to newly started homes slated for sale. All told, builders broke ground on 47,000 homes for rent over the last four quarters, a year-over-year increase of 17.5%, according to the NAHB. In the same period, builders broke ground on 1.14 million single-family homes.

Some of the nation’s largest homebuilders are looking to take advantage of the demand for build-for-rent homes.

Some sell houses to investors or companies looking to take over communities already packed with tenants. In July, PulteGroup announced a deal to build and sell roughly 7,500 homes over the next five years to Invitation Homes.

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

This spring, Lennar formed a venture with several institutional investors that aims to spend more than $4 billion to buy new single-family homes and townhomes from the homebuilder and, potentially, other builders, and then rent them.

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

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

FILE -   American Airlines aircraft wait at gates at Phoenix Sky Harbor International Airport in Ph...
Associated Press

American Airlines CFO on fixing balance sheet after pandemic

FORT WORTH, Texas (AP) — Derek Kerr might have the hardest job in the airline business. Kerr is the chief financial officer of American Airlines, and his task is to fix a balance sheet that has been battered by borrowing needed to survive the pandemic. American has the most debt among all U.S. airlines, more […]
7 hours ago
Firefighters move in a truck inside the Matanzas supertanker base to douse a fire that started duri...
Associated Press

Pope encourages Cuban search crews after Matanzas blaze

ROME (AP) — Pope Francis is offering support to firefighters and search crews in Cuba following the fire and explosions at a big oil tank farm in the western province of Matanzas. In a telegram Monday to Cuban bishops, Francis said he was closely following news of the “unfortunate accident.” He said he was praying […]
7 hours ago
Associated Press

Vegan Florida mom faces sentence in starvation death of son

FORT MYERS, Fla. (AP) — A vegan mother who said she and her family followed a strict diet of only raw fruits and vegetables faced sentencing on Monday in the malnutrition death of her 18-month-old son. Sheila O’Leary, 38, was convicted in June on six charges — first-degree murder, aggravated child abuse, aggravated manslaughter, child […]
7 hours ago
FILE - The headquarters of the German biotechnology company "BioNTech" is pictured in Mainz, German...
Associated Press

BioNTech reports strong first half, expects demand to grow

BERLIN (AP) — BioNTech, which teamed with Pfizer to develop a powerful COVID-19 vaccine, has reported higher revenue and net profit in the first half of the year and expects demand to grow as it releases updated vaccines to target new omicron strains. The German pharmaceutical company said Monday that revenue hit about 9.57 billion […]
7 hours ago
Secretary of State Antony Blinken is greeted by South Africa's Foreign Minister Naledi Pandor as he...
Associated Press

US Secretary of State Blinken sees South African counterpart

JOHANNESBURG (AP) — South Africa’s stance on Russia’s war in Ukraine and the adverse effects of the conflict on African countries are expected to feature in a meeting between U.S. Secretary of State Antony Blinken and South Africa’s Minister of International Relations Naledi Pandor on Monday. Blinken is in South Africa as part of a […]
7 hours ago
FILE - Former German Chancellor Gerhard Schroeder arrives to attend the St. Petersburg Internationa...
Associated Press

Scholz party rejects bid to expel German ex-leader Schroeder

BERLIN (AP) — Local officials with German Chancellor Olaf Scholz’s party rejected a bid to expel former Chancellor Gerhard Schroeder over his close ties to Russia, the news agency dpa reported Monday. An arbitration committee of the center-left Social Democrats’ branch in Hannover, where Schroeder lives, considered 17 applications from party members for proceedings against […]
7 hours ago

Sponsored Articles

...
Day & Night Air Conditioning, Heating and Plumbing

Ways to prevent clogged drains and what to do if you’re too late

While there are a variety of ways to prevent clogged drains, it's equally as important to know what to do when you're already too late.
...
Mayo Clinic Orthopedics and Sports Medicine

Why your student-athlete’s physical should be conducted by a sports medicine specialist

Dr. Anastasi from Mayo Clinic Orthopedics and Sports Medicine in Tempe answers some of the most common questions.
...
Carla Berg, MHS, Deputy Director, Public Health Services, Arizona Department of Health Services

Vaccines are safe if you are pregnant or breastfeeding

Are you pregnant? Do you have a friend or loved one who’s expecting?
Housing market trends fuel single-family home rental growth