Single-family Homes: For Sale, For Rent, Foreclosed

by John Wilhoit Jr. on

The home-ownership rate in the United States is decreasing.  Therefore, more single-family will be utilized as rental. How is single-family housing impacting multifamily rental?  So many homes are presently for sale, for  rent or foreclosed it’s hard to tell who’s on first!  

Bottom line is in 2011 with so many homes in various forms of “stasis” these homes are unavailable for rental- right now.  Certainly, single-family rental is a direct competitor to multifamily rental.  How big is this “shadow market” anyway?

According to the website Calculated Risk (www.calculatedriskblog.com) quoting from Census Bureau data, since 2004 there are 3.60 million homes built for sale that are being utilized as rental. 

As the home -ownership shrinks from 68% to perhaps as low as 63% over the next few years single-family homes will become a larger percentage of the rental marketplace.  With price differentiation, that’s fine.  With a multitude of owners each having a single rental that’s trouble. 

Landlords with a single rental seldom care about market rate rents.  Their objective is to cover cost, to break-even or do a little better.  The profit motive is secondary.  Retaining the asset via rental is the objective.   

Let’s review the sources of single-family property rental inventory that will soon compete directly with multifamily. 

For Sale Housing 

According to Reuters, the average days on market of “for-sale” housing is over 900 days in New York (NY City excluded) and over 600 days in Florida.

Recent data from Trulia (www.trulia.com) has the average Days on Market in Phoenix as 48 days.  After 48 Days on Market homes in Phoenix, on average, are reduced in price by eight percent.  Most notable is that 35% of for sale homes have had price cuts.  Numbers are similar for Mesa, AZ,  Minneapolis, MN and Long Beach, CA. 

Most housing that is “for-sale” is not for rent.  But presuming Days on Market continues to extend, this inventory will enter the rental market as in  many instances the only other option for the home owner is foreclosure. 

For Rent Housing

The number of single-family rentals cannot be ignored.  In my view, in our current economy, this pending excess inventory represents several percentage points of occupancy that normally falls to multifamily.  The number of  for-sale homes turned into rentals will only grow as the home-ownership rate decreases.  Whether because of economic uncertainty, the job market or reduced income, sentiment has changed towards home ownership. 

Granted, people still have a strong preference to be home owners, but conditions are not prudent to proceed if, for example, a young couple must move to take advantage of a job opportunity. This couple’s interest in home ownership takes a back seat to the mobility necessary to take advantage of employment opportunities. 

For-rent single-family housing competes directly with multifamily, more so than ever as rental price points for single-family dips and as single-family owners attempt to generate cash flow by any means necessary to retain assets.

Foreclosed Housing

There are over four million homes in foreclosure or serious delinquency in the United States.  According to Professor Wheaton of MIT single-family foreclosures are concentrated in four states.  They are California, Arizona, Nevada and Florida.

Is this for-sale housing or something else?  A short-sale is not for rent.  Nor a home stuck in the legal system for months on end.  Either way, it’s housing unavailable for rental.  For now…

Eventually, these markets will clear- all of them.  Of the for-sale and foreclosed homes many will become rental.  This will take years.  Limited construction the last three years will assist in absorbing much of this inventory. 

Consider, however, that as the home-ownership rate declines single-family will play a larger roll in the rental marketplace. Multifamily has a new competitor coming it’s way with some volume.  It’s name is the single-family home.

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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. We discuss best practices in multifamily management and methods related to how to buy apartment complexes. Our focus is sharing strategies and tactics that can be implemented and measured. For more information, visit: www.MultifamilyInsight.com

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