Dive Brief:
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Returns on single-family rentals for homes purchased so far this year were at their lowest level in nine years, according to the third-quarter 2016 Single Family Rental Report from ATTOM Data Solutions, which now owns RealtyTrac.
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The report looked at market conditions in 473 U.S. counties, finding an average gross yield of 8.7% for the period, down from 8.8% for the year-earlier period.
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Two-thirds of counties reported year-over-year growth in the share of single-family home purchases for rental by institutional investors, with the largest in Philadelphia, Cleveland, Orange County, FL, Columbus, OH, and Saint Louis.
Dive Insight:
The national homeownership rate is at its lowest level since 1965, as tight inventory conditions push housing prices skyward, wage growth only begins to kick up in gear, and competition for affordable rentals increases those prices, too. That’s making it particularly difficult for younger buyers to save up for a down payment and then to find a home that meets their location and budget needs. First-time homebuyers account for roughly 33% of home sales today, Realtor.com Chief Economist Jonathan Smoke told Construction Dive earlier this month, down from 40% before the recession.
As a result, they are turning to the rental market, where cost of entry is significantly lower. An August 2016 report from real estate listing website Zillow noted that 14% of renters whose credit and income would otherwise allow them to purchase a home are opting out. That's due in part to young people delaying major life events like marriage and having children, in addition to tight for-sale inventory making it difficult to even find a home.
The growth in the rental market has been accompanied by steady increases in rents, which has some renters re-considering the investment value of a home. In its monthly Real Estate Market Report, Zillow reported that the rent increases are beginning to slow, up 5.3% year-over-year in September but are not only appreciating at a rate of 1.5% annually. One big reason for this is a boom in apartment construction, which is beginning to cool.
That all could indicate a shift to homeownership among younger buyers. Existing-home sales rose 3.2% from August to September 2016, driven by first-time buyers who took a 34% share of sales. The National Association of Realtors’ Chief Economist Lawrence Yun noted that this was because move-up buyers typically exit the market in late summer, when school gets back in session, making room for first-timers who can pick from the remaining inventory with less competition.
According to a survey on home purchasing activity in September from Realtor.com, individuals ages 25 to 34 made up one-third of home shoppers during that month, and more than half of those surveyed said they were first timers compared to one-third a year ago.