Whether you believe they saved the real estate market or simply took advantage of the many foreclosure and distressed properties available, large institutional investors did help to prop up prices through purchasing thousands of single family homes.
Now they are purchasing fewer properties but definitely aren’t leaving the market completely. Instead they’re choosing to hold on to single-family rental homes as these are proving to be increasingly lucrative. According to the article in CNBC.com, prospects for the single-family rental market will remain good right to the end of this decade. It’s anticipated that rental growth will grow this year and will average nearly 3% annually right up until 2020. Prior to the housing boom single-family rentals accounted for 9% of the housing stock in the United States. Today they account for approximately 13% of the housing stock and this percentage is still increasing.
Since 2006, the number of single-family rental homes has increased by 35%, rising from 11.2 million to 15.1 million. During this period around 3.9 million owner occupied homes became rental properties compared to 2.9 million newly built apartments.
As the rate of foreclosures slows down experts believe the professional investors have an enormous opportunity to build a high-quality income stream out of a business that used to be primarily for much smaller operators. Over the past few years apartment construction has increased substantially, but in spite of this rents are continuing to grow in response to demand for rental property. This is in part due to a fall in homeownership rates amongst the middle-aged who often prefer to rent a single-family home as opposed to an apartment.
It’s anticipated 22 million new households will form between 2010 and 2030, with millennials being key to this growth. However 13 million of these new households will seek to rent rather than purchase and it’s likely that families will make up a larger than normal share of renters. Many of these renters will still need to repair their credit ratings after the recent crisis, something that institutional investors are all too well aware.
Institutional investors have already purchased around $25 billion of single-family rental homes. One of the largest investors owns nearly 150,000 homes and is apparently still buying new properties at the rate of 10,000 homes each quarter. Over the past decade 7 million homes went into foreclosure and another half a million are at some stage of the foreclosure process, meaning rental numbers will continue to rise. However it’s expected to change from large institutional investors towards smaller individual investors.