Morningstar Credit Ratings Publishes Single-Family Rental Research

Morningstar Credit Ratings, LLC is wholly owned subsidiary of Morningstar, Inc. and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization. Its January 2017 Single-Family Rental Research performance summary is an analysis of 28 single-borrower deals and over 108,000 properties. To view the full report, click here (reg reqd).

Retention Rates and Rents Increase

Retention rates in the form of renewed leases helped further lower the month-to-month vacancy rates. Additionally, rents continued increasing and Morningstar Credit Ratings expects the vacancy rate to improve further in the coming months. The average vacancy rate among single-borrower, single-family rental transactions declined to 5.1% in December from a revised 5.3% in November.

Rents for properties backing single-family rental securitizations rose by 3.4% from their prior contractual rents. This marks the smallest rent increase for 2016 but tracks a similar trend for rent growth seen in 2015, and rent changes may begin to rise next month.

The vacancy rate improved partly because of fewer winter lease expirations and a retention rate that stayed in the high 70 percentile. Additionally, the overall turnover rate declined for the fourth straight month and now stands at 2.7% as of November, the most recent data available.

Properties moving from vacant to occupied saw a smaller rent increase of 1.6% compared to renewed leases that achieved average rent increase of 4.4%. That trend matches the relationship that these measures experienced one year ago and renewal rent changes may continue to outpace vacant-to-occupied rent changes through the first quarter of 2017. People are staying put even as rents increase.

Low Delinquent Payment Rates

However, even in a strongly performing rental market, there are still bumps in the road in the form of delinquent loan payments. The average delinquency rate in single-family rental securitizations ticked up to 0.9% from 0.6% the month prior. Of the 28 single-borrower deals being tracked in December, eight now have delinquency rates at or above 1.0%, up from four last month. The highest of which is at 2.6%. Given that this specific transaction has 10.5% Section 8 tenants by count, it is likely that some of these delinquencies are because of a timing mismatch between receiving the Section 8 portion of the rent and the reporting of delinquencies. This means some amount of these delinquent rents are likely to be recovered.

Even in an industry with solid performance metrics there are delinquent loans. Generally, of the loans being tracked by Morningstar Credit Ratings, LLC, those becoming 90 days delinquent are being sent to special servicing, one is being foreclosed on, and one borrower has entered bankruptcy.

For full coverage of the Morningstar Credit Ratings Single-Family Rental Research: Performance Summary Covering All Morningstar-Rated Securitizations: 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.