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Pandemic Slows Rent Hikes but May Payments Stay High While Opportunity Emerges in SFBFR


May 25, 2020 by Marc Rapport

The growth in rental prices nationally has slowed down markedly, according to reports from Zillow (NASDAQ: Z) (NASDAQ: ZG) and CoreLogic (NYSE: CLGX), but the rent is mostly getting paid. And a niche rental construction segment has ticked upward.

CoreLogic said its Single-Family Rent Index for March 2020 showed a 3% increase from March 2019 but that it was the first time in three months the increase wasn't higher than the year before.

Rent prices for single-family homes are expected to further soften, as indicated by a 44% dip in applications in the second half of March as shelter-in-place orders spread across the country and millions were without work, CoreLogic said.

Lower-priced rentals -- defined as less than 75% of the regional median -- saw a slightly higher price gain nationally than higher-priced rentals (those at greater than 125% of the regional median), the real estate data firm said.

"The impact of the pandemic, and the resulting economic crisis, are still unfolding each day and will continue to ripple through the rental market in the coming months," the CoreLogic report said.

Then came April

Zillow, meanwhile, says its research shows year-over-year rent price growth in April was 2.9% nationally, down a half a percentage point from March in the largest such monthly dip since the company began tracking that data in 2014.

"Rent growth had been chugging along at a remarkably stable pace since 2018, with the growth rate rarely rising or falling much from one month to the next," the listings site said in a May 20 report. "That changed in April, the first full monthly reading since the coronavirus pandemic struck the U.S."

The company said the typical monthly U.S. rent was $1,594 in April, up 2.9% from last year at this time, the slowest annual growth since December 2017, according to the Zillow Observed Rent Index, which studies single-family and multifamily units.

Making May's rent

Meanwhile, 90.8% of apartment households had paid all or part of their rent by May 20, according to the Rent Payment Tracker from the National Multifamily Housing Council (NMHC).

That was last week, well into COVID-19's vice grip on America's economy and American lives, and only a 2.2 percentage point drop from the same point last year, according to the NMHC's survey of 11.4 million units of professionally managed apartment units across the country.

It's also a slight gain from the 89.2% that had paid all or something by the same point last month.

"Each week we see new evidence that Americans are prioritizing rent and that the work apartment firms did to create flexible payment plans is paying dividends," said NMHC President Doug Bibby.

"However, the hardships caused by the outbreak are not ending anytime soon. Accordingly, it is critical that lawmakers come together to support America's 43 million renter households with a national rental assistance fund as was included in the House-passed HEROES Act, and to protect our housing providers with expanded mortgage forbearance."

Opportunity in single-family built for rental

While residential construction overall has been slumping, the National Association of Home Builders (NAHB) reported that the number of single-family built-for-rent homes (SFBFR) being built actually posted a small year-over-year increase in the first quarter of 2020.

There were about 8,000 such starts in the quarter, compared with 7,000 in the first quarter of 2020, the NAHB said. About 40,000 nationwide were begun in the past four quarters, compared with 44,000 in the four quarters ending in March 2019, the trade group said in a May 21 report.

That's actually a small segment of the single-family rental house market, the NAHB said. Most single-family rentals were originally owner occupied, and "the vast majority are owned by individual households," according to the NAHB report.

In fact, from 2005 to 2015, the growth in single-family homes for rent accounted for 56% of the gain in all rental housing stock, the NAHB said.

But now may be a good time to consider investing in new construction for the rental market.

"A window of opportunity now exists for SFBFR construction," NAHB Chief Economist Robert Dietz said in the May 21 blog. "As some households seek lower-density neighborhoods and single-family residences, but must do so from the perspective of renting, the SFBFR market will likely expand in the quarters ahead."

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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool has a disclosure policy.