Single Family Residences Remain in High Demand
As we all know, the US residential real estate market is not homogenous.
Capital values and rentals of properties in different sectors in different locations can move independently of the broader market and do not necessarily have to follow macro trends.
Therefore, contrary to general opinion which expected the national real estate market to be in disarray due to the events of the last 18-20 months, properties in certain sectors of the housing market have actually benefited from the pandemic.
Single Family Residences (“SFR”) is one such asset sector which has been receiving high levels of attention from end-users—self-occupiers and renters—and investors. Changes in demand drivers and greater availability, where the “build-to-rent” SFR sector has seen sustained demand growth almost since the onset of the health crisis, have both contributed towards a positive performance.
Breneman Capital (formerly Rise Invest) believes that Single Family Residences can provide investors a unique opportunity and approach to investing in multifamily real estate, and is looking to acquire communities of SFR’s in the Phoenix metropolitan area.
But what exactly is a SFR?
“Single-family residence” generally refers to a standalone or single-family rental property(ies); a habitable structure maintained and used as a single dwelling unit. Such a unit may share one or more walls with another dwelling unit; therefore, “single” in this context does not necessarily mean that the property is free standing and unattached to another unit.
A SFR has direct access to a street, road or thoroughfare and does not share any essential utility such as water or gas or hot water equipment, or service with another dwelling unit.
In the US, around 20% of all renters live in a SFR.
What’s driving the growth in demand for SFR?
Historically, growth in the SFR sector can be traced back some 12-13 years to the global financial crisis of 2008 and the fallout in the national homes ownership market. The number of mortgage loan defaults and foreclosures increased, meaning that many people had to switch to renting homes. In fact, in the following 8-10 years, it is estimated that more than 3.8 million additional households became renters of SFR.
Lifestyle Changes
More recent changes to demand can be attributed to the pandemic with key change factors including life and work-style changes and technological advancements. The necessity to work from home for at least part of the working week during the pandemic made many renters decide to move away from urban, relatively small, expensive multi-family apartments. Their choices invariably involved securing more space as living and working functions combined. Many renters, therefore, moved to larger and, in many cases, more affordable single-family rental homes in suburban and rural areas.
Such homes typically offer more privacy and maybe an extra bedroom for an office, gym, guest room, or playroom and so on.
Improvements in technology have also helped drive demand, with the advent of online meetings and learning, as well as the remote management of a variety of businesses, becoming the norm for many.
In view of the above, it is very likely that the shift to remote working will become permanent for many, even if there is still a need for certain employees to attend the office a few days a week. All of the necessary communications can be from home, with lots of time and cost savings due to the lack of a commute being increasingly attractive to employees.
Shifts in demand demographics and attitudes
Much of the demand for SFR originates from:
● Far higher numbers of empty nesters looking to downsize, possibly with cash from the sale of their home and now preferring to rent homes:
● Longer life expectancies with huge numbers of ‘baby boomers” reaching retirement age–called by some the “silver tsunami”;
● More and more single individuals who are not yet or are unable to buy and maybe have an online business or do other types of online work from home;
● Millennials wanting to settle down and have more space, and a better lifestyle choice for themselves or their planned families.
Overall, these types of renters want more space than an apartment and don’t want to worry about the maintenance associated with owning a home.
Evidence of enhanced activity in the SFR market
Listings and sales
SFR are the most common type of home on the national sales market and the most commonly listed on the Multiple Listing Service (“MLS”). In 2019, the most homes sold in the US were detached single family residences, comprising some 83% of all sales.
Over the last year or so SFR has sold and rented faster than condos in almost all neighborhoods, indicating that buyers are actively seeking relatively large, private homes rather than condos—some for self-occupation and some for investment in view of the strength of the SFR rental market.
Another indicator of the strength of the SFR housing market sector is that, over the course of the last 15 months or so, a typical suburban SFR home spent only 25 days on the market before going under contract. Urban single-family homes are also selling quickly with a median of only 29 days on the market.
Pageviews
Online pageviews of homes in large metropolitan areas remain on the upturn, indicating that buyers and renters are actively looking at suburban and urban locations.
Pageviews of homes in metropolitan areas (urban and suburban) with a population of more than 1 million increased some 62% year over year by March 2021.
What’s been happening to prices?
The prices of urban SFR have been rising nearly 20% year over year according to national real estate brokerages. Such increase outpaced price growth rates for every other home category, a clear signal that buyers are searching for spacious, urban SFR near city amenities as the vaccine roll out continues.
The median sale price of SFR in urban neighborhoods now stands at close to $286,000—the aforementioned 20% increase being the largest on record.
In some SFR markets, larger institutional investors have moved some of their capital to this sector and, as a result, are now competing with end users for such property. However, institutional investors are only involved in about 3% of the total SFR rental market, meaning that there are still a number of opportunities for smaller investors to get involved in the sector.
Outlook for SFR
In the “new normal” demand and interest in the SFR sector is likely to remain permanent; indeed, some say that current demand is only the beginning of a much greater upturn.
Even though the build-to-rent sector is capturing a significant amount of market share, it is unlikely that supply of SFR can keep pace with demand, indicating a positive prognosis for the SFR sector in the foreseeable future.
Breneman Capital
Breneman Capital is a data-driven multifamily investment firm pushing the real estate industry into the future with a modern approach to direct real estate investments.
We focus on providing our investors with the best risk-adjusted investment opportunities in carefully selected markets across the U.S., researched and underwritten with extreme detail from our headquarters in Chicago.
To begin receiving high-quality investment opportunities from us, sign up today: