Here are the top high yield SFR markets in the US
Total returns since the beginning of the year have ranged from 3.2% to 11.7%.
With rising rates and down payments interacting with mortgage rates that still exceed 7% for a 30-year fixed loan, this is a tough market for those looking for their first home. But “the headwinds that disproportionately impact the affordability of homeownership are proving to be the headwinds for the SFR market,” says Moody’s Analytics CRE.
The company said: “The imperative of increasing interest rates as the Federal Reserve’s main monetary policy tool to manage persistent inflation and return to price stability has inevitably led to the average weekly interest rate for 30-year fixed mortgages in the United States rising to its highest level in more than 20 years”. .
Current conditions have made the current domestic market “very tight.” Those who may be thinking about selling their homes face two potential problems. First, they likely have low mortgage interest rates, and this cheap debt wouldn’t be available if they moved. Second, prices are near record highs, even with some declines. High mortgage rates are making properties more expensive, and current owners are realizing they may not be able to get the rates they want. This reduces inventory and maintains upward pressure on prices.
Many people may rent a home as an alternative, which helps drive SFR values as an investment. But there is a secondary effect. As Moody’s noted, “Investors, institutional, regional and small businesses are sensitive to market conditions, which leads to a slower pace of acquisitions as interest rates rise.” This means that supply will not expand to meet demand, making conditions an “absolute blessing” for net inflow.
This is likely to change, they said, “as many institutional operators enter into joint ventures with banks, homebuilders and private equity firms to expand their horizontal multifamily positions.” This means build to rent or BFR.
But currently, this is not the case, and SFR is benefiting strongly from the current constraints in the housing market. Here are SFR’s top 10 metro areas, along with their year-to-date total revenues and ratios of homes available for rent versus those for sale, based on data from Parcl and Moody’s.
- Rochester, NY – Total Return 11.7%; Rent-to-list ratio, 0.19
- Harford, CT – 8.6% total return; Rent-to-list ratio, 0.15
- Buffalo, NY – Total Return 8.0%; Rent-to-list ratio, 0.13
- Pittsburgh, Pennsylvania – Total return, 8.0%; Rent-to-list ratio, 0.50
- Cleveland, Ohio – 7.8% total return; Rent-to-list ratio, 0.30
- Cincinnati, Ohio – 7.6% total return; Rent-to-list ratio, 0.26
- New Orleans, LA – 7.5% total return; The rent-to-list ratio is 0.46
- Chicago, IL – Total Return 7.4%; Rent-to-list ratio, 0.25
- Detroit, Michigan – 7.0% total return; Rent-to-list ratio, 0.33
- Houston, Texas – 7.0% total return; Rent-to-list ratio, 0.70
“When the number of properties currently available for rent is high relative to the number of properties currently available for sale, as indicated by the rent-to-list ratio, total returns tend to be lower,” Moody’s wrote. “There is also a significant overlap between high rent-to-list ratios and large institutional SFR portfolios in metros. The opposite is true for metros where the rent-to-list ratio is low. Houston particularly stands out as a metro city where TSR exceeds the top 10, yet it has With a high rent-to-existing ratio and thousands of properties owned by institutional operators.