Hey, I'm a smug Boomer who bought their house when real estate was dirty cheap and mortgage rates were low. Suck it Millennials.
Houses Too Expensive to Buy Underpin Lofty Rents
Single-family home rents are rising more than apartments this year
By Will Parker, WSJ
Nov. 20, 2023
Big public companies that rent out single-family homes are beating the rest of the rental market this year, thanks to tenants who are paying large rent increases on the sorts of homes they increasingly can’t afford to buy.
Landlords Tricon Residential, Invitation Homes and AMH, which together own about 180,000 rental homes, each posted rent increases greater than 6% for the third quarter over the same period a year prior.
That was about twice as much as the average increase for rental homes in September, compared with the same month last year, according to separate indexes from data firm CoreLogic and online-listing company Zillow.
Tricon Chief Executive Gary Berman attributed his firm’s gains in part to record-high home prices that are steering more would-be single-family home buyers toward rental houses.
“In such a distorted environment for home buyers, the case for rental is more compelling than ever,” he told investors and analysts earlier this month.
Tenants in single-family homes also move less often than apartment renters, and may be more willing to absorb rent increases if their families feel settled into a neighborhood and school system.
Apartment rents shot up about 15% in 2021 and continued rising at an above-typical pace in 2022. That growth has been moderating and has even turned negative compared with last year, according to some metrics, as record new apartment construction has helped slow apartment-rent advances in many parts of the country.
Mid-America Apartment Communities, a publicly traded apartment landlord, reported a 2.2% decline in new-lease rents in the third quarter, compared with the same quarter a year ago.
Rent growth for rental homes has also slowed since hitting a peak in 2022, but it is proving more resilient. Houses for rent are benefiting from the least-affordable home-sales market in many decades, a result of sale prices reaching new highs and mortgage rates hovering near a two-decade high.
The average mortgage payment is now 52% higher than the average monthly rent check, according to a recent analysis by real-estate brokerage CBRE. Affordability, measured as a ratio of income to home-purchase costs, is at the worst level for buyers since at least 1985, according to John Burns Research & Consulting.
Renters of houses tend to be wealthier than apartment renters and are more likely to eventually own a home, analysts said. But there are fewer of these renters willing or able to make the switch to ownership at today’s prices and mortgage rates, giving rental-home landlords an upper hand.
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Housing analysts said that the largest single-family landlords can also collect outsize rent increases because of the types of neighborhoods where they choose to invest.
That is usually in places with above-average job growth and school quality, where tenants are the most likely to absorb higher rents, instead of paying high moving costs, said Haendel St. Juste, an analyst at Mizuho. Landlords also gain more market knowledge about rents when they buy up a large share of houses in a given neighborhood, said Michael Goldsmith, a housing stock analyst at UBS.
Rebecca Aponte, a psychologist in Atascadero, Calif., said she and her college-professor husband would like to buy, but for now are content to continue renting a townhouse for $2,500 a month.
The monthly mortgage payment on the kind of home they have viewed in neighboring San Luis Obispo would total more than twice their rent, Aponte said, and would also be a few-hundred-square-feet smaller.
“It’s just gonna take a really long time for the right thing to actually convince me financially that buying is a good move,” she said.
Despite these trends, stock investors aren’t all impressed with single-family landlords this year. Tricon and Invitation Homes’ shares have underperformed the S&P 500 year to date, though AMH has beaten it.
Short-term bearish sentiment on the single-family industry is tied to higher interest rates, which have kept these and other companies from purchasing many homes for the past 18 months. Investors purchased 30% fewer homes in the third quarter than during the same period a year ago, according to Redfin.
Some investors and analysts think property taxes will also become a bigger headwind soon, as local tax assessments catch up to the record increase in home values.
But shares of large apartment landlords have fared even worse since midyear, when rental growth started turning negative. Stock prices for Equity Residential and Camden Property Trust are down about 9% and 17% over the past six months, respectively.
Write to Will Parker at will.parker@wsj.com
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