Between 2020 and 2021, the average purchase price of a home went up 16.9%, according to the National Association of Realtors, from $346,900 to $391,700.
The real estate market is on fire.
The fact that the real estate market is hot has become a common narrative. Wherever you look, you can find articles and podcasts with stories of how people are being outbid on single-family homes. However, that has not stopped people from snatching up properties so far in 2022. Let’s review why now is the time to invest in the single-family rental market.
Various Reasons to invest in the single-family rental market right now
A demand for housing
According to the Realtor.com Monthly Housing Report, “the typical U.S. home spent 61 days on market in January, 10 days less than last year and nearly a month (-29 days) faster than the typical 2017-2020 pace.” As a result of the increased transactions, prices have continued to go up. The median listing price increased 10.3% up to $375,000 in January 2022 compared to January 2021. Furthermore, it represents a 25% increase from the median listing price in January 2020.
While the market may not sustain this type of price growth, there is no denying the fundamental rule of supply versus demand supports the argument that prices are still going to go up for the foreseeable future.
Realtor.com also released a report stating, “the gap between single-family home constructions and household formations grew from 3.84 million homes at the beginning of 2019 to 5.24 million homes as of June 2021.”
According to the Census Bureau, there were 1,116,000 housing starts and 927,000 completions for single family properties in January 2022. As such, the housing deficit is around 5 times the expected single-family property new construction for 2022. The housing shortage is not going to be resolved anytime soon based on these numbers.
The one factor that mitigates the massive imbalance in supply versus demand is the United States’ minimal growth in population last year. The Census reports that the U.S. population increased by only 392,655 people (0.1%) in 2021 which is the slowest annual increase since nation’s founding. This was caused by net international migration, decreased fertility, and increased mortality due in part to the Covid-19 pandemic. A bounce back, however, is expected in 2022 as long as Covid-19 continues to subside.
Overall, it is clear there is a dearth of supply in face of high demand. The lack of supply will continue to lead to higher prices. If you buy a single-family property as an investment, then gravity will be on your side.
Rents are UP
Single family rents skyrocketed in 2021. According to the CoreLogic Single-Family Rent Index, single-family rent growth increased 12% in December 2021, the fastest year-over-year increase in over 16 years.
The damage has not been distributed equally across the country, however. The market of Miami was affected more than any other city and it’s not even close. The rent growth was an insane 35.7% in 2021; Phoenix placed second at 18.9%.
Realtor.com projects that rents will go up even more for single-family and multi-family properties in 2022, stating “at a national level, we forecast rent growth of 7.1% in the next 12 months, somewhat ahead of home price growth as rents continue to rebound from slower growth earlier in the pandemic.”
Mortgage rates are still low:
Although mortgage rates have increased in the last few months, they are still at an acceptable level for investing in single-family properties.
According to Freddie Mac’s data, rates are heading back to pre-pandemic levels. As of early March 2022, the U.S. average for a 30-year fixed mortgage rate is 3.76%. During the pandemic, the average interest rate was as low as 2.65% in early January 2021. However, rates were in the 4s and high 3s for the majority of the period of 2010 to 2019.
