Softened Market Sees Heightened Investor Action in the Real Estate Sector
The rental market may be experiencing a seasonal slowing but is looking strong long term. Rental prices have not taken a dip in quite some time, as a matter of fact they’ve been on a steady rise. Investors may be seeing a lull in demand, but certainly not a back-slide, indicating continued stamina in Real Estate investments even through the holiday season.
The Phoenix market in particular is experiencing an investor-friendly trend. Though inventory is low, consumer demand is below normal as well. Interest rates have seen a slight spike but are still in favorable territory making conditions ripe for Real Estate investors.
Investor activity by entities purchasing at least 10 properties a year is up approximately 30 percent, comprising 3 percent of single-family homes sold in the first seven months of 2016, according to the ATTOM Data Solutions Q3 2016 Single Family Rental Market Report. Single-family rental returns, however, dropped to a nine-year low.
“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” says Daren Blomquist, senior vice president at ATTOM Data Solutions. “After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.
“Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner-occupied single-family homes—one in every four single-family homes—these single-family rental investors will be an important and likely growing force in the real estate market for years to come.”
Institutional Investor Purchase Share Increases in 68 Percent of Markets
Nationwide, 2.7 percent of all single-family homes that sold in the first seven months of 2016 were purchased by institutional investors—entities purchasing at least 10 properties in a calendar year. That was up 29 percent from a 2.1 percent share in the first seven months of 2015 and followed two consecutive years of declines. Over the last 10 years, the peak in institutional investor share of single-family purchases nationwide was 8.4 percent in the first seven months of 2008.
The average annual gross rental yield—monthly rent, annualized, divided by median home price—among the 473 counties analyzed was 8.7 percent for properties purchased in the first seven months of 2016, down from an average of 8.8 percent for the same time period in 2015 to the lowest level since 2007, when the average gross rental yield across the 473 counties was 7.3 percent.
Counties included in the analysis all have a population of at least 100,000 and sufficient rental and home price data. Rental data was from the U.S. Department of Housing and Urban Development, and home price data was from publicly recorded sales deed data collected and licensed by ATTOM Data Solutions.
Among the 473 counties analyzed for the report, 322 counties (68 percent) posted year-over-year increases in share of institutional investor purchases, including Philadelphia County, Pa. (up 72 percent); Cuyahoga County (Cleveland), Ohio (up 45 percent); Orange County (Orlando), Fla. (up 25 percent); Franklin County (Columbus), Ohio (up 28 percent); and Saint Louis County, Mo. (up 93 percent).
Georgia Counties Account for Seven of Top 10 for Institutional Investor Share
Richmond County, Ga., in the Augusta-Richmond metropolitan statistical area that borders South Carolina, had the highest share of institutional investor single-family purchases in the first seven months of 2016: 13.8 percent.
Six other Georgia counties followed: Muscogee in the Columbus metro area that borders Alabama (13.3 percent), along with five Atlanta-area counties: Henry (13.2 percent); Douglas (13.0 percent); Newton (12.0 percent); Clayton (11.9 percent); and Paulding (11.3 percent).
Rounding out the top 10 for institutional investor share of single-family purchases were Jefferson County (Birmingham), Ala. (10.7 percent); Montgomery County, Ala. (9.8 percent); and Bell County, Texas in the Killeen-Temple metro area (8.8 percent).
Other metro areas with counties in the top 20 for institutional investor share of single-family purchases in the first seven months of 2016 included Memphis, Tenn.; Salisbury, Md.; Charlotte, N.C.; Saint Louis, Mo.; Jacksonville, N.C.; El Paso, Texas; and Columbia, S.C.
Counties in Atlanta, Baltimore, Detroit Post Highest SFR Returns
Counties with the highest annual gross rental yields for single-family homes purchased in the first seven months of 2016 were Clayton County, Ga. in the Atlanta metro area (24.3 percent); Baltimore City, Md. (22.8 percent); Wayne County, Mich. in the Detroit metro area (18.5 percent); Bibb County, Ga. in the Macon metro area (17.7 percent); and Bay County, Mich. in the Bay City metro area (17.6 percent).
Other metro areas with counties in the top 20 for highest rental returns included Ogdensburg-Massena, N.Y.; Racine, Wis.; Saginaw, Mich.; Muskegon, Mich.; and East Stroudsburg, Pa.
