SFR Vacancy, Turnover Rates Drop in Winter Months

Fewer properties with lease expirations in the winter months resulted in a general decline in vacancy rates along with strong retention rates for the month of November, according to data reported by Morningstar Credit Ratings in its December 2015 Single-Family Research: Performance Summary Covering All Morningstar Rated Securitizations.

The lower percentage of lease expirations for the winter months could also be the cause of a general decline in turnover rates, according to Morningstar. Overall, delinquency rate remained low and cash flows remained sufficient to cover bond obligations despite an uptick in delinquency rate for 12 out of the 23 securitizations covered in Morningstar's report.

Morningstar publishes its performance summary in order to provide property-level data for each securitization monthly for market participants, since historical data for SFR securitizations is relatively limited. The first SFR securitization, IH 2013-SFR1 (Invitation Homes), in October 2013. Since then, issuance for SFR securitizations has surpassed $13 billion for about 100,000 homes, according to Morningstar.

“The December property-level data shows performance of the single-borrower, single-family rental asset class has remained strong,” Morningstar stated in the report. “Vacancy and turnover rates have been improving and delinquency rates continue to be low and in line with Morningstar’s expectations. Monitoring the monthly performance of key metrics in both the single-borrower and multiborrower areas of the singlefamily rental asset class is important as more historical data becomes available, particularly as issuers employ different strategies in managing their securitized pools.”

Delinquency rates generally ticked up among the 23 securitaztions, yet they remained low; the highest delinquency percentage for any transaction in December was 1.7 percent, for both ARP 2014-SFR1 (American Residential Properties) and PRD 2015-SFR2 (Progress Residential). Even though the ARP transaction tied for the highest delinquency rate in December, the rate of 1.7 percent was still way down from its peak of 3.0 percent reached in June 2015.

Since the number of lease expirations heavily influences the vacancy rate during a given month, the vacancy rate tends to be higher when there are more lease expirations. Likewise, the fewer the lease expirations during a month, the lower the vacancy rate. Out of the 23 transactions covered in Morningstar's report, 16 of them had fewer lease expirations in December than they had in November. The highest delinquency rate during December went to AH4R 2015-SFR1 (American Homes 4 Rent) with 8.0 percent, which was still an improvement of a full percentage point from December's rate of 9.0 percent. PRD 2015-SFR2 reversed five consecutive months of steady increases by declining to 6.6 percent in December.

Click here to view the complete Morningstar SFR Performance Summary.