There’s good news for investors with a renowned economist stating that the long-term market for single-family rentals should be strong for years to come.
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Frank Nothaft, chief economist for CoreLogic and former chief economist at Freddie Mac, told HousingWire that he’s bullish on the sector due to the size of the “millenial” generation – those aged 22 to 25-years – who’re on the verge of forming their own households. Notthaft points out that while many are looking to move out, the average age of first-time buyers is now in the 30s. As a result, many of those new households will probably be renters rather than buyers.
“Since the great recession began, household formation has been anemic,” Nothaft notes in a column for HousingWire. “But this year household formation will be at its highest point in 10 years — close to 1.7 million new households — many of which will be renters.”
Nothaft points out that over 5.8 million homeowners lost their homes to foreclosure during last decade’s housing crisis, and that many of these have now been forced to rent a home instead. This has boosted the growth of single-family detached stock considerably in recent years. He singles out markets like Las Vegas and Phoenix in particular – both cities saw home values drop significantly during the housing crisis, and have consequently seen single-family rental stocks rise by 80 percent.
About 35 percent of all rental stock are single-family rentals and single-family rentals tended to have the lowest vacancy rate – less than 3 percent compared to 8 percent or more among larger apartment buildings, Nothaft notes.
The demand for rentals is also pushing up rental rates. For example, the average rent in San Francisco has risen by 18 percent this year, while in Phoenix, rents have grown by almost 10 percent in the last year.
“No matter how you crunch the numbers, the outlook for rentals looks strong for the foreseeable future,” Nothaft notes.
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