SFR Demand Grows as Mortgage Rates Rise


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There’s a lot of uncertainty in the economy right now as inflation pushes higher. The housing market is contributing to inflation with higher home prices, and now we’re seeing higher mortgage rates. As potential homebuyers get priced out of the market, real estate investors see the need for housing as a big opportunity for single-family rentals.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Institutional investors have been very busy this year expanding their portfolios of single-family rental homes. As reported by HousingWire, they’ve sponsored at least 10 SFR securitization deals worth almost $8 billion. (1) ATTOM Data Solutions’ Rick Sharga says: The historically low inventory of homes to buy coupled with (rental) vacancy rates hovering around 2.5%, have positioned SFR owners for success in today’s housing market.”

Strength of the Single-Family Rental Market

The institutional deals highlight the strength of the single-family rental market, but it’s the “mom and pop” investors who are the biggest beneficiaries because the single-family rental market is dominated by small investors. According to, 99% of single-family rentals are owned by smaller investors and 90 percent of them own fewer than ten units. (2)

But the Wall Street landlords are showing a lot of interest, and their share is growing. This trend is gaining momentum as potential homebuyers lose the battle against inflation, and the Fed tightens the belt on the money supply.

The Fed’s recent decision to increase short-term lending rates by a whopping 75 basis points is the Fed’s latest attempt to slow a hot economy. It’s the biggest rate hike we’ve seen since 1994 and will raise borrowing costs for adjustable rate mortgages and other short-term loans.

Rising Mortgage Rates

It’s not directly tied to the popular fixed-rate mortgage, but will impact mortgages through a complex set of economic relationships. That includes nervousness among investors, bond yields and the 10-year Treasury.

After more than a decade of low mortgage rates, the 30-year fixed-rate mortgage topped 6% last week. According to ATTOM, mortgage originations were down 18% from the Q4 of last year to Q1 of this year. Year-over-year, they were down 32%.

The biggest reason for the mortgage downturn is a decrease in refinancing. ATTOM says just 1.45 million home loans were rolled into new mortgages during the first quarter. That’s 22% lower than the end of last year and 46% lower than a year ago.

According to Sharga: “The drop-ff in Q1 refinancing activity is no surprise with mortgage rates rising as rapidly as they have.”

Renting Cheaper than Buying

Home prices are also keeping homebuyers at bay. According to John Burns Real Estate Consulting, it’s now more costly to own a home than it is to rent one since the year 2000. The consulting group says it costs about $839 per month more to buy than to rent. (3)

John Burns senior research manager, Danielle Nguyen, says: “With demand now shifting toward renting, home builders who were once reluctant to sell to rental home investors are now soliciting offers from investors.” She says: “Strong demand from investors will provide additional support to today’s home prices.”

SFR Opportunities for Investors

As dire as it may sound to hear about higher mortgage rates and expensive homes, demand for single-family rentals remains strong, and that’s attracting more institutional investors. MetLife Investment Management told HousingWire that: “MIM believes that institutional SFR ownership is likely to grow significantly over the next decade.” It expects that share to grow from 2% where it is today to around 10% in the future. Much of that growth will come from the new build-to-rent trend that’s taking shape.

It isn’t just the big landlords who are doing the build-to-rent thing. Although it’s great that institutional investors might prefer to leave the existing home inventory to small investors and homebuyers, there are opportunities for small investors to own newly-built rentals. If you’re a member of RealWealth, then you probably know that we work with with property teams who can provide that kind of rental unit to our members. If you’d like to know more about that, please go to and sign up. It’s free, and will give you access to our resources, including investment counselors and property teams. While you are there, you can also check for links on this topic in the show notes for this episode.

Also, please remember to hit the subscribe button, and leave a review!

Thanks for listening. I'm Kathy Fettke.


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