Sector Spotlight: Built-to-Rent(BTR)/Single-Family rentals
Increasing interest rates have posed challenges for the commercial real estate industry. However, they have also brought attention to an emerging category: single-family rentals (SFR) or build-to-rent (BTR) properties. Both encompass comparable rental styles, featuring units that resemble single-family homes. These residences may either exist within cohesive neighborhoods (typically categorized as BTR) or spread across wider geographic areas (referred to as SFR). Currently, the former accounts for only about 1% of the total apartment market, indicating that this sector is still in its early stages of development. The specialized nature of this asset class offers significant opportunities for investors seeking early entry and aiming to capitalize on the anticipated growth trajectory of this sector.
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Navigating the Demographic shift:
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The largest generation in the United States, the Millennial generation, is aging. The majority of this generation began renting after the 2008 recession, and as the market expanded significantly in the 2010s, multifamily saw exceptional results. As they approach their 30s and 40s, they will account for the majority of the population growth in the ensuing ten years. Millennials begin getting married and starting families around this time, which usually serves as a catalyst for them to upgrade their living arrangements.
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We would anticipate a rise in the number of home purchases by renters over the next ten years due to the convergence of aging demographics and significant life events. The confusing aspect, though, is how difficult it is to become a single-family homeowner in the current market.
The simplest method to illustrate this inability to afford is to display the amount of a house that a potential buyer might afford, given the average monthly rent. A buyer could afford to pay somewhat more than $500,000, or more than 40% more than the median-priced home, in the third quarter of 2021 when rentals were roughly $1,670 per month and the mortgage rate had declined to 2.9%.The average monthly rent now stands at $1,800, an increase of almost 8%. A buyer might afford to buy an approximately $330,000 home with mortgages above 7%, which is more than 15% less than the current median home price and, more significantly, represents a 34% drop in future buying power in only two years.
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Affordability in the single-family housing market has drastically declined. Prospective homebuyers now find themselves limited, capable of affording homes only approximately 17% below the current median price, based on rental rates.
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REFERENCES : Cushman & Wakefield Newsletter, December 2023 - [https://www.cushmanwakefield.com/en/united-states/insights/multifamily-monthly]
Disclaimer: The article content above is derived from Cushman & Wakefield's December 2023 newsletter and is used here for informational purposes. [DSPrecapital.com] is an independent entity and not officially affiliated with Cushman & Wakefield.