Recently, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac would be discontinuing their single-family rental (SFR) pilot programs. While making this announcement, FHFA Director Melvin Watt had said that what was learned as a result of the pilots was that “the larger single-family rental investor market continues to perform successfully without the liquidity provided by the Enterprises.”
According to a statement by Freddie Mac to DS News, they had made a conscious decision to focus on affordability and mid-sized entities. "As a result, nearly 90 percent of the units funded by the pilot were affordable to low-income renters with a median transaction size of approximately $11 million dollars. In addition to providing needed capital, we also provided standardization and quality control to the middle market segment."
The FHFA authorized the GSE programs in 2017. Freddie Mac stated that $700 million of the $1.3 billion of loans for single-family rental homes was committed in announced deals. "Freddie Mac will continue to work in a judicious and disciplined manner with our lenders as we conclude our single-family rental pilot program," the statement added.
So how does this impact the SFR market? Carrington Mortgage Holdings' EVP, Rick Sharga, noted that rental growth is increasing rapidly and shows no signs of stopping, from around 11 million to over 16 million since 2009.
“Many former homeowners in the Gen-X age cohort have opted to rent rather than buy homes, either by choice or financial necessity,” said Sharga. “Household formation is increasing as the millennial generation ages, but a higher percentage of these young adults are delaying homeownership – the average age of a first time homebuyer is about 31 years old. So homeownership rates have stagnated, and are not growing at the same pace as household formation, which means that there is a growing demand for rental properties. Multifamily construction appears to have peaked in 2017, so single-family rental property owners should be looking at pretty healthy demand from tenants over the next few years.”
DeAnn O’Donovan, President & CEO of AHP Servicing, saw a similar trend. While rentals were expected to go down this year, the truth is rentals have increased, as mortgage rates increased and inventory stayed low.
“Rates have indeed increased, but the housing supply in many markets remains tight for affordably priced rental properties. As a result, the demand for moderately priced single-family rentals has not slowed as predicted,” stated O’Donovan. “In the markets, I follow more closely, the majority of the increase in new construction rentals have been higher-end properties with premium rental rates that are out of reach for most moderate and middle-income renters.”
Greg Rand, Founder, and CEO of OwnAmerica noted that originally, the GSEs pilot program was aimed at smaller investors, rather than large investors who did not need the help, and this was not the case, leading regulators to pull the program.
“I don’t think this is over,” said Rand. He noted that there was a lot of pushback from the homeownership industry, which Rand stated is partly the reason why these programs never reached their target.
“They view investors as being competitors to homebuyers,” Rand said. “But neglect the fact that these investors are buying homes that are going to be rented out to everyday people. So when an investor buys a home, sure there was a homebuyer that got beat on that deal, but now there is a renter who gets to live in that neighborhood.”