News on the Single-Family Rental Market



The November Morningstar Credit Ratings Report shows the securitized single-family home market remains strong, stable, and slightly improving. The impacts of Hurricane Irma and Hurricane Harvey are now well understood. Hurricane Irma appears to have little to no impact on the Florida single- family rental markets. However, Hurricane Harvey may have contributed to the increase in vacancies and decline in rents in the Houston market.

Overall, retention rates of expiring leases among single-family rental securitizations increased to 76.3% in September, the latest month with available data. Lease expirations in October increased slightly to 6.5%. The average vacancy rate in October remained stable at 5.9%. Single-family rentals tend to decline in the late autumn and winter months, meaning a stable vacancy rate underlines a strong market. Following Hurricane Harvey, the Houston metropolitan statistical area (MSA) is the first single-family rental MSA in 2017 to have a vacancy rate of 10.0% or higher.

The national average retention rate on full-term leases increased slightly to a strong 76.3% in September, the latest month available, from a revised 74.6% in August. Rents rose 2.9% in October. For September, the rent change for vacant-to-occupied properties was 0.7%, while the rent change for renewal properties was at 4.5%. Both numbers indicating it’s significantly more profitable to retain tenants than back fill vacancies.

Month-to-month rental retention rates averaged 86.5%, which is the second highest month for 2017. The average September turn over rate was 3.2% which is approximately the mid-point for the year.

The report covers a total of 23 single-borrower deals and close to 84,000 properties analyzed. Morningstar tracks key metrics to gauge the performance of single-borrower, single-family rental transactions that Morningstar rates. There are several ways to view these metrics. For example, the vacancy rate might be calculated based on property count, by cash flow, or by days of occupancy. To account for different reporting across issuers, Morningstar seeks commonality across the single-borrower issuers’ monthly reporting to derive its calculations.

Multiborrower deals are similar to single-borrower transactions in that the underlying collateral is generally single-family rental properties. They differ, though, in that single-borrower deals are backed by one loan, while multiborrower deals have many loans.

The Morningstar Performance Summary report provides property-level performance information for all Morningstar-rated single-family rental transactions as of the November 2017 distribution date. For full report click here.

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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.

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