Could rental houses owned and managed by deep-pocketed hedge funds and big investors be the post-bust steppingstones to homeownership for huge numbers of renters?
Could they also provide a form of safe harbor or sanctuary for thousands of families who were displaced from their previous homes through foreclosures or short sales?
A new national study suggests that the answer to both questions is yes.
Over the past five years, according to Wall Street analysts’ estimates, between $7 billion and $9 billion worth of distressed single-family homes have been purchased and converted to rentals by institutional investors – hedge funds, private partnerships of high net-worth individuals and even pools of capital raised among investors in foreign countries.
Unlike traditional “mom and pop” rental home investors, these funds have been scooping up dozens, sometimes hundreds, of properties through cash purchases of foreclosures, short sales and bulk packages.
Though single-family rental homes have long been a part of the American housing scene, the involvement of large-scale institutional investors is causing the category to explode. According to a new study conducted by pollster ORC International for Premier Property Management Group, a company that works with investors, roughly 52 percent of all rental units in the country are now single-family homes and house 27 percent of all renters.
Recent Census Bureau data cited in the study indicate the number of single-family rentals grew by 21 percent between 2005 and 2010 – from the top of the boom through the depths of the bust and foreclosure crisis – compared with a 4 percent increase in total housing units.
The mass conversions are contributing to the severe declines in homes-for-sale inventories in markets where foreclosure rates were most pronounced during the bust, according to Mark Fleming, chief economist for CoreLogic, a mortgage and real estate research firm. Lack of inventory, in turn, is pushing up prices of entry-level homes in those areas.
But the ORC-Premier study suggests that the new waves of single-family rentals may also be providing important pathways to homeownership for first-timers and those displaced by the housing bust.
Fully 60 percent of rental home tenants say they plan to buy a house sometime in the next five years. By contrast, only 44 percent of multifamily apartment building renters have similar plans.
According to the study, the high interest in ownership “reflects the new roles single-family rentals are fulfilling as a steppingstone to homeownership for first-time buyers and as a sanctuary for large numbers of families displaced by foreclosure but who plan to buy again when they can afford to do so.”
Bottom line from the study: Single-family rentals are likely to remain a growing factor in the housing market, as incubators and safe havens for future purchasers. At the same time, they may, at least temporarily, depress the national homeownership rate, which stands at around 65 percent, down from 69 percent during the boom.
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