The slump in home sales this spring has befuddled economists and bedeviled real-estate agents, given how low borrowing costs and unemployment have been. Big rental-home owners, on the other hand, are overjoyed.
which owns more than 80,000 single-family houses, and
American Homes 4 Rent
with nearly 53,000, reported record occupancy and rents this week. Invitation said its same-home occupancy rate ticked up to 96.5%, and that rents on leases signed during the period were up 5.3% from a year earlier. Occupancy and rent growth for American Homes 4 Rent were 96.5% and 4.7%, respectively.
Those are highs for both companies and better than what has been achieved by owners of apartments, which are also in demand but suffer somewhat from being overbuilt, said John Pawlowski, an analyst at the real-estate research firm Green Street Advisors.
“The rental market broadly is on very firm footing,” he said.
Some investors are skittish about the nascent single-family rental sector’s expenses. These include maintenance of tens of thousands of far-flung houses, as well as property taxes, which constitute roughly half of these companies’ ongoing costs and have been rising along with home values.
So far, though, demand for their family-size rentals in highly rated suburban school districts has been sufficient for the companies to be profitable.
“While expenses remain a fly in the ointment, top line growth is coming in strong enough to keep the bottom line intact,” JPMorgan Chase analysts wrote in a review of American Homes 4 Rent’s results.
After a tepid reception in 2017, Invitation’s stock has soared. Including dividends, it has returned 38% this year, even as
the investment firm that financed Invitation’s multibillion-dollar house hunt at the depths of the foreclosure crisis, has halved its stake by selling roughly $3 billion worth of Invitation shares into the market.
American Homes 4 Rent, which has fewer homes but operates in more markets than Invitation, was established by the self-storage magnate B. Wayne Hughes and run by one of his former Public Storage lieutenants. Its stock, which made its debut in 2013, has returned 23% in 2019. The S&P 500 stock index has added about 20% in 2019, including dividends.
Both companies cater to relatively well-to-do families with school-age children. The average rent at Invitation is $1,800 a month. At American Homes 4 Rent, it is $1,620. As such, they compete with not only each other but homeownership as well.
Spring—the prime leasing season for single-family-rental companies—is when about 40% of home sales take place. Sales of existing homes fell 1.7% in June to a seasonally adjusted annual pace of 5.27 million, according to the National Association of Realtors. They declined year-over-year for a 16th straight month.
Showings per available property at American Homes 4 Rent were up 20% in the second quarter from a year earlier, and Invitation Chief Executive Dallas Tanner said the second quarter was the first in which buying a home wasn’t the most common reason tenants gave for moving out of the company’s homes.
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Affordability, particularly for first-time buyers, is pushing would-be buyers to rental-home firms and helping to keep them there. Researchers at John Burns Real Estate Consulting recently estimated that even after 30-year mortgage rates fell from nearly 5% in November to below 4%, only 54% of Americans can afford to buy a house that is 20% below the median price in their area.
“For a renter, there aren’t many other options if you have a family that’s too big for an apartment and not a lot of money for a down payment,” said Trevor Tetzlaff, one of the researchers.
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