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How Single Family Rental Market Is Impacting Home Sales

Is the single-family rental (SFR) market a major contributor to the low inventory housing is continuously experiencing? According to a new Zillow analysis released Wednesday, this market could be limiting options for lower- and middle-income buyers.

Zillow finds that the number of SFR homes grew by over 5 million between 2006 and 2017. In total, about 270,000 fewer homes are sold each year compared to 2006, or about 5 percent of the homes that would sell in a typical year. Additionally, about 120,000 of these lost sales were among the most affordable homes that are often considered by first-time buyers.

"For the past 10 years, the number of single-family homes that are rented has grown steadily and remains near the highest levels ever recorded," said Aaron Terrazas Zillow Senior Economist. "The combination of foreclosures and growing rental demand following the housing crash was an attractive opportunity for investors—large and small—who were able to buy foreclosed homes and use them to meet the rental demand.”

At the same time, many long-time owners have opted to hold onto their homes as rentals even after they decide to move somewhere else. According to Terrazas, with such a large portion of single-family homes being rented out, and with new homes being built more slowly than the market needs, home values will continue to rise, particularly among the most affordable homes with the highest demand.

Based on the report’s analysis, the renter population increased fast when owners lost their homes to foreclosure following the housing crisis—and the share of SFR homes grew from 13 percent in 2009 to 19.2 percent in 2016. That demand remains strong, as 45 percent of  renters would like a SFR home, but only 28 percent could find one to rent.

Another factor making the booming SFR market such a concern are millennials. As the largest group of buyers in the market today, this group is enhancing buyers competition for more affordable entry-level homes. However, the report notes that over the last five years, the homes being purchased and converted to rentals are increasingly the same affordable starter homes that first-time buyers are after—therefore limiting buyers’ options and increasing competition.

The data shows that nearly 40 percent of SFR homes bought since 2012 are among the most affordable, compared to 34 percent of SFR homes that were bought before the housing market crash.

To view the full report, click here.

Investors interested in the single-family rental market should take note of Five Star’s 2018 Single-Family Rental Summit, set to unfold March 19-21, 2018, at the Renaissance Nashville Hotel in Nashville, Tennessee. The three-day Summit will feature top subject matter experts and skilled SFR practitioners leading discussion panels and training sessions related to property acquisition and management, financing, strategies for small, mid-cap, and large investors, and new developments related to technology and professional services. You can find more information by clicking here.

About Author: Nicole Casperson

Nicole Casperson is the Associate Editor of DS News and MReport. She graduated from Texas Tech University where she received her M.A. in Mass Communications and her B.A. in Journalism. Casperson previously worked as a graduate teaching instructor at Texas Tech's College of Media and Communications. To contact Casperson, e-mail: nicole.casperson@thefivestar.com.

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