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Why Invitation Homes Stock Surged More Than 12% in December

By Matthew DiLallo – Jan 5, 2022 at 11:13AM

Key Points

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Single-family home rentals remain hot commodities.

What happened

Shares of Invitation Homes (INVH 1.16%) jumped by 12.1% in December, according to data provided by S&P Global Market Intelligence. Continued strong demand for single-family rental homes helped fuel that rally.

So what

Invitation Homes, a real estate investment trust (REIT) focused on single-family rental homes, is benefiting from surging demand for this type of housing. CoreLogic reported in December that single-family home rents were up 10.9% year over year in October. That was triple the growth reported in the prior year and the sixth straight monthly record high for single-family rent growth. CoreLogic also noted that the vacancy rate on such homes was at a 25-year low.

Driving the high demand for single-family rentals is an expensive and competitive for-sale housing market that is forcing many potential buyers to remain renters. Meanwhile, many of these renters desire more space, which is leading them to seek out houses to rent instead of apartments. 

People outside a single family home with a for rent sign.

Image source: Getty Images.

These strong market conditions have been a boon for Invitation Homes. The residential REIT's blended lease rate rose by 10.6% during the third quarter, driven by 18.4% rent growth on new leases on existing homes and 7.8% rent growth on renewal leases. Invitation Homes' occupancy also improved to 98.1% as of the end of the quarter.

Based on CoreLogic's report of continued rent growth in October, Invitation Homes should report strong numbers again in the fourth quarter. 

The strong demand for single-family rentals has led Invitation Homes to increase its acquisition target. The REIT expected to purchase between $1.7 billion and $1.8 billion worth of single-family homes in 2021, up from its original goal of $1 billion. It was able to boost its budget by securing additional financing. It issued $1 billion of low-cost debt in November. In December, it signed forward purchase agreements with several banks to issue up to $1.25 billion in stock to help fund single-family home purchases. This increased access to funding gives Invitation Homes additional flexibility to continue making acquisitions in 2022. 

Now what

Invitation Homes is benefiting from its focus on single-family rental homes. The REIT's existing homes are renting for higher rates, driving strong income growth. On top of that, the REIT is taking advantage of market conditions and its funding access to purchase even more homes.

There are no signs that the favorable market conditions for the company will cool off anytime soon. Since the Great Recession, the housing industry has built significantly fewer homes annually than the historical average. Because of that, supply and affordability will remain issues for potential buyers, likely forcing many to continue renting. That should drive continued income growth for Invitation Homes.  

Matthew DiLallo owns Invitation Homes Inc. The Motley Fool owns and recommends Invitation Homes Inc. The Motley Fool has a disclosure policy.

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