November 24th 2024.
According to analysts, rental homes will continue to be a popular choice for those who are unable to purchase a home due to high mortgage rates and escalating home prices. Mizuho Securities USA and Raymond James & Associates point to real estate investment trusts American Homes 4 Rent and Invitation Homes as two companies that are poised to benefit from this trend.
The reasoning behind this prediction is quite simple: a large number of Americans will continue to struggle to find a single-family home that they can afford to buy, making renting a more appealing option. The current state of mortgage rates plays a significant role in this, with the average rate on a 30-year mortgage recently reaching a two-year low of 6.08%. However, it has since risen and is expected to continue increasing as the 10-year Treasury yield, which lenders use to determine home loan prices, also rises.
The outlook for mortgage rates is not the only factor contributing to the predicted popularity of rental homes. Following the presidential election, the 10-year Treasury yield experienced a surge, indicating that investors believe President-elect Donald Trump's proposed economic policies may lead to a wider federal deficit and higher inflation rates. As a result, analysts at Raymond James and Associates believe mortgage rates will remain "higher for longer," which bodes well for American Homes 4 Rent and Invitation Homes.
Both companies are also expected to benefit from the ongoing demand for suburban homes and the significant difference in monthly payments between renting and owning a home. According to analysts, this gap can be as much as 30% less for renters. Mizuho also predicts that the affordability obstacles faced by prospective homeowners will continue to fuel demand for rental homes, leading to strong tenant retention rates for American Homes 4 Rent and Invitation Homes.
Despite facing competition from individual homeowners and small investors, these two real estate investment trusts are holding their own. In fact, they are currently seeing higher new and renewal tenant lease rates compared to some of the largest apartment owners in the US.
On a larger scale, homebuilders are also recognizing the potential in the rental market and have started constructing new homes specifically for rental communities. In the third quarter of this year, about 24,000 single-family homes were built for this purpose, a significant increase from the 17,000 built during the same period last year. This trend continued into the second quarter, with 25,000 single-family rental starts, the highest quarterly total recorded since 1990.
It is clear that the demand for rental homes is on the rise, and companies like American Homes 4 Rent and Invitation Homes are poised to benefit from this trend. As the market continues to favor renting over buying, these real estate investment trusts are expected to see continued success.
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