Recently we got a question from a vendor in our space with an interesting question:
Head vs. tailwinds for the SFR market… Which one is going to win this year? The next 2 years?
We thought we’d share how we answered that question, because it’s a solid synopsis of what we see coming in the single-family rental market in 2024 and beyond:
This is tricky to project because the winds are mixed, but we believe there will be more tailwinds than headwinds in the coming months.
Tailwinds (Good for Investors)
Rent growth is one tailwind we expect to continue (especially in high cost-of-living markets) due to the unaffordable nature of buying a home and high interest rates. SFRs are obviously the best alternative for someone who can’t manage to buy a house in these economic conditions, so renter demand should persist. That’s good for investors. And while SFR rent prices may not grow as much as they have been because SFR rents have increased significantly in the past couple of years (with landlords aware of the rent they charge when competing against today’s mortgage prices), overall rent prices should be fine and price growth should continue, albeit modestly in some areas.
Plus, as interest rates come down (which has already started to happen in December 2023), we could see a large influx of residents who leave rentals to purchase a home as soon as possible. Rates would have to decrease maybe more than 2% from their 8% high for that to happen, but right now the trends say that could happen relatively early in 2024. Whenever it happens, with a lot of buyers on the sidelines now, lower rates will spike home values, which means SFR owners will have options. That’s another tailwind.
Headwinds (Challenging for Investors)
The one headwind to watch is increasing pressure of legislation against ownership of SFRs in some communities (especially when it comes to institutional ownership. Due to low availability, regulations, and increasing competition, there are currently less opportunities to find/build SFRs in some markets. But right now it doesn’t look like those headwinds will be as strong as the tailwinds just mentioned.
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