Emerging Trends in Single-Family Rental Market Amidst Shifting Dynamics

While institutional investors in the single-family housing sector have shown caution due to rising mortgage rates and inflated prices, a wave of mid-sized players in the home rental industry has seized the opportunity.

Simultaneously, the build-to-rent (BTR) segment within the single-family market is encountering its own set of challenges. A recent report from Northmarq indicates that although the long-term outlook for BTR remains positive, construction starts for this year are projected to decrease by almost half.

Conflicting Perspectives

Rich Sharga, CEO of CJ Patrick Co., a market intelligence firm specializing in real estate and mortgage companies, revealed that mid-sized investors are the “well-kept secret” of today’s market. These firms emulate the models established by their larger counterparts but focus solely on markets where they possess local knowledge.

Speaking at the National Association of Real Estate Editors’ annual conference in Las Vegas, Sharga highlighted the robust performance of these firms, stating that they are actively acquiring properties. Companies such as Kinloch Partners in Nashville, Quinn Residences in Atlanta, and West Florida Invest in Tampa were cited as examples of the ongoing momentum.

In contrast, data from the Northmarq report suggests that investment activity in the BTR sector has significantly slowed this year, with lenders also adopting a more cautious approach.

The report predicts a notable decline in construction starts this year as developers accelerated their efforts in the previous year to meet existing and anticipated demand. According to the report, both starts and deliveries reached record highs in 2022. While deliveries are expected to remain substantial this year, starts are forecasted to decrease by nearly 50 percent.

Nonetheless, the report highlights that transactions are still taking place, and the long-term outlook remains favorable due to demographic trends. Supported by a labor market that exceeds expectations and a housing market that continues to present challenges for potential buyers, the demand for single-family rentals is growing steadily.

Significant deals have recently materialized, including SFR (Single-Family Rental) giant Pretium Partners’ agreement to acquire thousands of homes from D.R. Horton, the nation’s largest home builder. This transaction, reportedly valued at $1.5 billion, encompasses finished homes as well as properties still under construction. Pretium has also struck deals with other builders and iBuyers, companies that purchase single houses from individual sellers at competitive prices.

Development Hotspots

According to the latest RentCafe report, there are currently 44,700 BTR houses under construction nationwide, tripling the number of completed units from the previous year, which set a record.

Phoenix leads the pack with the highest number of units in the pipeline, totaling 5,500. It is followed by Dallas with 4,400 units and Houston with 2,600. Over the past five years, Phoenix has been the most active BTR market, adding just over 6,000 units. As of January 1, this sprawling desert city boasts 8,239 rental houses.

Dallas secures the second spot, with just under 4,000 units added between 2017 and 2022, resulting in a total of 7,843. Detroit ranks third, with 2,229 units added and a cumulative total of 4,558.

The evolving landscape of the single-family rental market demonstrates the intricate dynamics at play, as mid-sized investors step up while the BTR sector navigates through both challenges and growth opportunities.