Single-Family Rental Lease Retention Strengthens as Rents Rise

The latest single-family rental research from Morningstar Credit Ratings, LLC shows the rental market following familiar trends in the closing months of 2017, with more renters choosing to renew their expiring leases and delinquency rates holding steady.

Morningstar’s Single-Family Rental Research Performance Summary shows lease expirations across single-borrower, single-family rental securitizations declining between October and November 2017, dropping from 6.5 percent to 5.2 percent. The retention rate for expiring leases in October 2017 (the latest data available at the time of the report), increased to 79.3 percent in October, up from 76.4 percent in September.

Both of these stats reflect a general trend of tenants typically preferring not to move during the winter months. This correlates to a typical slowdown in homebuying during these colder months, which could present opportunities for single-family rental investors to find inventory that will provide a good return on investment, according to a December report by HouseCanary.

Morningstar also reports that the average vacancy rate also declined in November, dropping to 5.6 percent from 5.9 percent in October. The Houston metropolitan statistical area (MSA) retained the highest vacancy rate among the top 20 MSAs, unsurprising given the impact of Hurricane Harvey during the fall of 2017. However, after six consecutive months of increases, Houston’s vacancy rate did finally decrease to 9.4 percent in November, down from 10.0 percent in October. The Nashville, Tennessee MSA came in with the second highest vacancy rate for November, increasing to 8.0 percent from 7.6 percent in October.

On average, rents rose 2.8 percent in November. In Houston, however, rents dipped in November for the third consecutive month. September saw a decrease of 0.8 percent, October a 0.4 percent drop, and November a 0.6 percent drop. According to Morningstar’s report, “The rent declines could be in response to the increase in vacancy rates Houston has experienced as the market adjusts. Hurricane Harvey may have partially contributed to the Houston rise in vacancies and decline in rents, but the rise in vacancies started before the hurricane hit.”

According to a December 2017 report by Harvard University’s Joint Center for Housing Studies, increased demand and low inventory have driven a demand for rental properties, especially among wealthier people who could afford to purchase a home if they so desired. 

All of this is presenting tons of opportunities for the savvy investor in 2018. You’ll be able to find out more during the Single-Family Rental Summit, happening March 19-21 at the Renaissance Nashville Hotel in Nashville, Tennessee. You can register for the Summit by clicking here.