August 14, 2019C-Suite, Asset Manager, Investor, Industry News, Secondary Market, Securitization, Servicing, Single Family Rental SFR
2019 Trends in the Single-Family Rental Market
We often think of rental properties as urban apartments and high-rise buildings. However, according to a 2018 Freddie Mac report, the reality is that 58% of America's 43 million renter households live in single-family housing – comprised of 1-4 unit properties, including detached homes, townhomes, and 2-4-unit properties. The total valuation of single-family rentals (SFRs) is estimated at well over $4 trillion, compared to $3.7 trillion for the traditional 5+ unit rental properties.
While small (and very small) investors have historically dominated the single-family rental (SFR) market, the recession brought institutional investors into the market. Following the financial crisis, investors and banks began to sell single-family homes at distressed prices, which attracted institutional investors. Although the distressed investment opportunity is largely finished, there still remains significant institutional interest in this asset class.
More than ten years post-crisis, the number of SFR properties owned by aggregators continues to grow as institutional investors seek opportunities to diversify away from other real estate sectors. As of today, less than 2% of SFR properties in the US – roughly 300,000 – are owned by institutional investors. However, the number of homes owned by SFR aggregators has increased year over year. Certain companies opportunistically believe that they can continue to grow, eventually owning or managing hundreds of thousands of homes across the country.
Certain trends indicate this market will continue to grow.
Increase in rental households
Unlike the pre-crisis housing market, the residential market is now on an upward trajectory because of supply-and-demand dynamics, rather than credit. Throughout the financial crisis and the recovery to date, the number of owner-occupied households has remained stable, while rental households have increased. This may be largely due to the barriers millennials face in purchasing a home – including student loan debt, rising costs, slow wage growth, and low housing inventory. Millennials also appear have a different attitude about homeownership than previous generations.
Millennials more comfortable renting
Many US millennials (born 1980-96) have a different view of homeownership compared to their parents' generation. Millennials witnessed the price falls of the financial crisis and may therefore be more comfortable with the idea of renting and the flexibility it offers. This means a large sector of the population is renting for longer – even as they marry and have children. As millennials form families, they are more likely to seek single-family homes in which to raise them.
Streamlining portfolio management with technology
Managing thousands of individual homes is more difficult than a single apartment building, which is a fundamental reason the single-family sector did not institutionalize earlier. Technology is now being used to help solve this problem to more easily manage large portfolios of individual homes.
Strong securitization market
As institutional investors began accumulating large SFR portfolios, a form of securitization was introduced to the market in 2013, pooling loans backed by single-family rentals. SFR securitizations have a hybrid structure with characteristics of both commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS). Fifty-one single-borrower SFR securitizations have closed since 2013.
The volume of SFR securitizations steadily continues. Eight transaction securitizations closed in 2018, most of which were refinance activity of prior debt and several large term loans. We continue to see new lender entrants into the SFR lending space, including Rothesay Life, a London-based company that entered into a term loan with Invitation Homes. 2019 securitization volume is tracking on par with last year, with two transactions having closed early in the year and several others in the pipeline; investor demand remains strong, showing the SB SFR space as appetizing.
Today, the market is comprised of smaller securitizations, warehouse activity and iBuyer facilities, which have taken off in recent years. These iBuyers represent a new type of player in the SFR space, focused on buying and reselling quickly.
Meet the Faces of MI Operations
Leaders of Radian’s Mortgage Insurance (MI) Operations team share their insights on trends impacting the mortgage industry.
Woman of Influence: Emily Riley
Emily Riley shares insights on what it means to be a woman leader in the housing industry.
Bidding Wars, Cash Offers, Record High Prices: What You Need to Know
With bidding wars, cash offers, and record high prices, find out what you need to know about appraisal contingencies in today’s housing market.
Radian Technology in Action
Amid a global pandemic that has accelerated the demand and need for digital products and services, we are at the forefront, delivering new and better ways to manage credit risk and execute real estate transactions.
The Changing Role of HR: Leading People into the Unchartered Future
Mary Dickerson shares her key priorities as Radian’s new Chief People Officer and how the role of HR professionals has changed over time.
Are You Ready for URLA Updates?
According to the GSEs, the new Uniform Residential Loan Application (URLA) is designed to enhance data quality, improve consistency and clarity, and strengthen the entire application process.
Risk and Reward: A Women in Housing Special Edition
Radian’s SVP of Enterprise Risk Management shares her insights on trends shaping the industry and advice to young professionals.
Understanding New Appraisal Flexibilities
Radian and Freddie Mac discuss the latest changes in the appraisal industry as we navigate the impact of COVID-19.
What the New COVID-19 GSE Guidelines Mean for You
We have updated our processes to align with COVID-19 GSE announcements and temporary guidelines, and we broadly support borrowers through this hardship through our policies. Here's a closer look at the changes.
Tips for Loan Officers Working from Home
Download this infographic that highlights a few tips to help you stay productive while working from home.