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Price Surges Boost Rental Home Construction

market research Jan 14, 2021

Home prices rose more between 2019 to 2020 than any year since Q1 2014. Fox Business reports that as of October 2020, home prices have risen 8.4% year over year. This puts the nation 25% higher than right before the 2008 financial crisis!

According to the managing director at S&P Dow Jones, the last few months have shown that COVID-19 has pushed a significant percentage of potential buyers from more urban apartments into suburban homes. Even if they cannot afford to purchase the home. 

In most cases, demand for rental homes is going up, which is bringing up prices in single and multifamily homes. There have not been this many single-family homes under construction since 2007. Real estate investors are building tens of thousands of homes with the primary intent to be used as a rental property. These investors are betting on the fact that Americans will continue to migrate toward economic hubs within booming metros and choose to rent over purchasing their household.

"The gains have outpaced wage growth, straining affordability despite historically low borrowing costs. Homeownership is unaffordable for average wage earners in 55% of U.S. counties, up from 43% a year earlier" - Attom Data Solutions, a real-estate analytics firm

As many hard working families get priced out of buying a home, landlords continue to report record occupancy and rising rents. These trends have been accelerated during the pandemic.

"Individuals, family offices, pension funds, and Wall Street's boldfaced names are shoveling billions of dollars into build-to-rent projects. Homebuilders are embracing the business of selling houses wholesale to landlords, and even teaming up with them to build neighborhoods that blur the line between houses and apartment complexes." - Fox Business

More than 50,000 houses were built specifically to serve as rentals between October 2019 and October 2020 according to John Burns Real Estate Consulting.

Executives at LGI Homes Inc. stated that bulk sales to investors will likely account for as much as 10% of 2020 new build sales. If you're in the market to run a value-add or flip a single family home, those deals are out there, but they're getting harder to find. That's one of the reasons why the build-to-rent boom is a growing trend. Cheap foreclosures are not only a diminishing reality, they come with more maintenance demands in a long-term hold.

"Building made it possible for investors to outfit houses with their preferred fixtures and finishes at the onset. Plus, landlords found that renters were willing to pay premiums to move into brand-new houses." - Fox Business

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