SFR Rent Growth Slows But Outpacing Multifamily

The single-family rental (SFR) housing market, focusing on the subcategory of purpose-built SFR housing communities often referred to as build-to-rent (BTR) or build-for-rent (BFR) housing.

The market statistics reveal somewhat divergent trends for SFRs in the COVID-19 period: tightening vacancy and declining rent growth.

In June, vacancy fell for the seventh month in a row. The 2.9% level for securitized SFRs was the lowest reported in several years. Tighter vacancy is coming from three primary sources.

First, demand for SFRs appears to have increased during the COVID-19 period, as widely discussed in the industry.

Second, SFR housing falling vacancy is a result of higher than usual SFR resident retention. The May retention level was 83.2%. SFR renters moved less than usual during the early COVID-19 period. Higher retention and lower turnover are part of the appeal of SFRs and a necessity for operational success. Multifamily's retention levels were also higher than usual in Q2 2020 but are still much lower than SFRs.

Third, in the COVID-19 period, eviction moratoriums have impacted SFRs, helping to keep vacancy low (and also impacting revenue streams). Most SFR residents are making their rent payments. However, delinquency rates have risen. After hovering under 1% for several years, delinquency inched up to 1.1% in April and then 3% in May and 3.2% in June. (In June 2019, delinquency rates averaged 0.6%.)

CoreLogic's rent data indicates that the SFR market fundamentals are strongest at lower price points. The most expensive rent-tier quartile achieved year-over-year increases of 1% in June compared to 2.5% for the least expensive quartile.

Some of the new SFR demand from multifamily may be coming into the less expensive part of the SFR market. The performance differential by price also likely reflects some "flight from quality" choices by SFR renters.

Vacancy Tighten Due to Increased Demand & Higher Retention

The market statistics reveal two somewhat divergent trends for SFRs in the COVID-19 period: tightening vacancy and declining rent growth. In June, vacancy fell for the seventh month in a row. The 2.9% level for securitized SFRs was the lowest reported in several years. Tighter vacancy is coming from three primary sources. First, demand for SFRs appears to have increased during the COVID-19 period, as widely discussed in the industry.

Second, SFR housing falling vacancy is a result of higher than usual SFR resident retention. The May retention level was 83.2%. SFR renters moved less than usual during the early COVID-19 period. Higher retention and lower turnover are part of the appeal of SFRs and a necessity for operational success. Multifamily's retention levels were also higher than usual in Q2, but are still much lower than SFRs.

Third, in the COVID-19 period, eviction moratoriums have impacted SFRs, helping to keep vacancy low (and also impacting revenue streams). Most SFR residents are making their rent payments. However, delinquency rates have risen. After hovering under 1% for several years, delinquency inched up to 1.1% in April and then 3% in May and 3.2% in June. (In June 2019, delinquency rates averaged 0.6%.)

Rent Growth Subsides in Q2

SFR rent growth remains higher than conventional multifamily but increases subsided during the early COVID-19 period. In June, rent growth for securitized STRs averaged 2.7%. This compares favorably with multifamily's 0.6% decline. The June STR increase reflects significant cooling from recent years. In June 2019, the year-over-year change was 5.1%.

CoreLogic reported June rent growth at 1.4%, the lowest level since May 2010. Just before the pandemic, in February, year-over-year growth was 3.3%.

CBRE's survey of a small number of stabilized BTR communities found year-over-year rent increases of 1.0% compared to 10.8% a year ago. (Note that the BTR rent figures could be skewed, due to the small sample size.)

Phoenix & Sacramento are Best SFRs Markets

Based on the securitized SFR data, Phoenix had the best year-over-year rent growth in June; Sacramento had the lowest vacancy. Despite Las Vegas' harder-hit economy, its SFR market was also performing well along with the Inland Empire. Houston and Ft. Lauderdale had the lowest annual rent gains.

CoreLogic's top-ranked metros for rent change (out of 20 ranked) were Phoenix (5.0%), Tucson (2.9%), Charlotte (2.6%), Seattle (2.2%), Austin (2.1%) and Las Vegas (2.0%). Honolulu and Los Angeles both had small declines.