KBRA Releases Research – Single-Family Rentals: Headwinds Mounting

KBRA releases research that gives an update on trends within the single-family rental (SFR) sector.

The SFR sector is facing the most challenging environment of the last decade. After a period of rapid growth, national home prices and asking rental rates are now in decline, and operating margins are under pressure due to higher labor costs, insurance premiums, and real estate taxes. These challenges have ramped up over the last two quarters and have so far been felt predominantly at the owner/operator level. While tenant delinquency rates remain meaningfully above pre-pandemic levels, institutional SFR assets have maintained relatively stable occupancy rates and high tenant retention rates, despite the headwinds.

Key Takeaways

• After a period of rapid growth, national home prices declined approximately 3% between July 2022 and February 2023. Home prices in the top 10 markets among KBRA-rated SFR securitizations, which represent 59,134 SFR properties, also decreased about 3% during the same period.
• Over the last two years, the average rental rate increase on new leases in SFR properties was 11.7%—more than double the 5.2% average rate increase on renewal leases.
• Market data indicates that asking rental rates started declining in Q3 2022, around the same time that home prices started declining. Rental rates in the top 10 SFR markets declined 5.3% between September 2022 and February 2023, which was greater than the national average rental rate decline of 1.9% in the same period. These declines have not yet been meaningfully observed in the KBRA Comparison Set (Comp Set) due to the typical lease term of 12 months and a high percentage of lease renewals serving as a buffer for the Comp Set.
• Although there is a long-term fundamental housing shortage in the U.S., the deluge of new rental unit deliveries from multifamily and build-to-rent completions expected to come online in the near term may impact the SFR sector by driving vacancy rates higher and rental rates lower.
• However, historical equity appreciation and cash flow growth in the sector, coupled with the relative affordability of SFRs compared to home ownership, provide strong tailwinds that should continue to support the credit performance of SFR securitizations.

As the economic cycle evolves, trends in home prices, rental rates, and operating expenses will serve as useful guides in understanding the future performance of SFR securitizations and the broader SFR sector.

Click here to view the report.

Related Publications

• SFR Securitizations: A Decade in Making
• Single-Borrower SFR: Comprehensive Surveillance Report (September 2022)
• CoreVest American Finance: Comprehensive Surveillance Report (November 2022)

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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