We’ve just rolled through the first quarter of the year. What was the best thing about the last three months? It was no longer 2020! As we settle into the “new normal” of post-pandemic life, real estate investors (REIs) should be aware of the USA’s rental housing markets’ latest trends.

Rental markets remain, in a general sense, a tale of two realities. In the suburbs, like Westchester County, rental demand remains strong. Residential rental markets in large metro areas like New York City, Washington, D.C., Los Angeles, and San Francisco are still struggling as the wave of outmigration from those areas continues.

As (hopefully) the last of the COVID restrictions melt away over the coming three to six months, the national economy will likely put up stronger numbers. That will boost demand for rental housing. Sometime in 2021, the eviction moratorium will probably be lifted once the government puts measures in place to compensate landlords for back rent owed from the pandemic and restores a sense of normalcy to the rental market.

Traditionally, the single-family detached rental house has been viewed as less than desirable for REIs than multifamily units. Why? Single-family rentals can be time-consuming, higher-priced, and costly to fix and maintain. In the past, analysts believed that the main reason people bought single-family homes as rentals vs. multifamily units was the ability to gain from long-term rises in real estate prices. In 2021, this traditional rental philosophy must be revised.

Today, the single-family home is much sought after for both equity growth and rental income. Why? It’s simple economics – demand continues to grow, and supply is shrinking.

The chart below illustrates this trend. The U.S. Census Bureau tracks single-family rental (SFR) occupancy rates over time. As of the 4th quarter of 2020, SFR Occupancy rates are above 94%. Pay attention to the trend line over the past ten years. This is not a “COVID only” phenomenon. Rather, we see a structural shift in rental housing demand accelerated by the pandemic, not created by it.

The Burn’s Single-Family Rent Index™ is showing rising new lease rents in many cities. These have growth rates above 5%.  According to their report, US single-family rents accelerated 3.8% YOY in September, roughly unchanged from August’s 3.9% YOY growth.

 

Single-family rental homes now account for over one-third of the nation’s housing stock. Aging millennials who cannot afford to buy a home are nonetheless leaving urban centers in large numbers. They want a safer, transit free and suburban or rural lifestyle.

Did COVID accelerate this process? For sure. Did COVID create this market demand towards more single-family rentals? No.

According to managecasa.com, there are several property management trends for single-family units:

  • Work at home means living in a multi-room house, within a home office
  • Migration out of dense urban areas to rural areas where most house building is happening
  • Accelerated need for digital service delivery because of distances
  • Individual profit margins on all rentals shrinking, making efficient management even more relevant
  • Challenge from big rental property conglomerates trying to buy up properties
  • Tenant rent default as rents rise along with regional employment trends
  • Government regulation threats from safety to renter protection

RCLCO Real Estate Advisors (https://www.rclco.com) believes –

Based on current trends, RCLCO believes the single-family rental market will likely be undersupplied over the next 10 years, despite the increased attention the segment is currently receiving.

For the remainder of 2021 and beyond, there is a consensus that demand will continue to outpace supply for single-family rental homes nationwide. In rental markets directly adjacent to large metropolitan areas, like New York City, the outlook is even more promising.

If you have a residential property or properties in Westchester County that you are interested in renting, now is the time to put them on the market. At Sterling Property Solutions, we have a team in place that can answer all your questions and address any challenges.

If you are already a landlord and no longer have the time or desire to handle rental property management on your own, we can help. Maybe your current property management company is not giving you the top-tier service you deserve. If so, reach out. We are there for you.

Please give me a ring at 914-355-3277 or send me an email at Linda@Sterlingpsi.com.