Multifamily, SFR Should Remain Fastest Growing Housing Segment

Article originally posted on Globe St. on June 18, 2021

Households are being priced out of homeownership by rising home prices, high debt burdens, and wage levels that haven’t kept up with inflation.

Multifamily and single-family rentals should remain the fastest growing segment of the US housing market says DBRS Morningstar in a new report.

“Single-family rental is experiencing unprecedented demand, and we do not expect it to abate anytime soon,” the researchers assert.

Looking at multifamily, the report points out it has been the best-performing property type over the past nine years amid the longest expansion on record before the pandemic.

The growths are being fueled by an expanding swath of households priced out of homeownership by rising home prices, high debt burdens, and wage levels that haven’t kept up with inflation, according to Morningstar.

Inflation could also boost rentals, says Morningstar, as higher interest rates could strain homeownership affordability.

The researchers point out although the US homeownership rate in Q4 2020 was 65.8%—more than 30 basis points higher than the first quarter and the highest it has been since Q2 2012—it still sits nearly 400 basis points below the all-time high set in 2004, per the US Census Bureau. In addition to affordability, the homeownership rate in the United States is being dampened by a slowdown in household formation.

Fueled in no small part by this ever-present demand, US median rent prices reached the highest level seen in more than two years in May, surpassing pre-COVID levels, Realtor.com chief economist Danielle Hale said this week. The recovery was widespread. In 38 of the 50 largest metros, rents hit new peak prices. Rents rose at an average pace of 9.1% year-over-year in May in those 38 markets.

Separately, CoreLogic is reporting that single family rent growth is up 5.3%, the highest increase in 15 years.

Rents in high-priced properties climbed at a faster clip than for low-priced units. Higher-priced rentals rose 6.1% in April 2021, up from a gain of 2.2% in April 2020 while low-end properties increased 3.9% year over year in April 2021, up from 3.2% in April 2020.

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