MReport February 2019

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TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T The Group Dominating the SFR Space Here's what a report revealed about the growing demand for single- family rentals and different ownership types in the SFR market. A ccording to a white paper by Freddie Mac, titled "Single Family Rental, An Evolving Market," an overwhelming major- ity of rentals in the SFR (Single Family Rental) space is owned and operated by individuals or very small investors. The middle-tier market, on the other hand, is a slow-growing investor market with further potential for growth. Large-scale institutional investors constitute only approximately 1 percent of SFRs, as they are still new to the market. The key findings of the paper found that SFR makes up about half of the overall rental market— the single largest segment of the rental market by valuation and households served. SFRs are the largest source of rental housing in America, especially in rural areas where they account for two-thirds of the rental housing stock, accord- ing to a Freddie Mac white paper titled "Single Family Rental: An Evolving Market." SFRs provide housing to 25 million Americans and is valued at more than $4 trillion. Apart from the select few institutional investors with access to capital markets, the second- ary market opportunities for SFR loans are limited, according to Freddie Mac. Secondary market opportunities for SFR loans are limited, the pa- per notes. Apart from these select few institutional investors with access to the capital markets, there are limited secondary market opportunities for SFR loans with middle-tier investors that would provide liquidity and stability. The paper also stated that there is no uniform set of terms and credit standards for loans on SFRs. Steve Guggenmos, VP of Multifamily Research & Modeling at Freddie Mac, said, "Freddie Mac's pilot program in this space sought to demonstrate how secondary market infrastructure focused on SFRs might benefit the marketplace." He also noted that the single-family rental mar- ket assumes great significance as data reveals it to be an "afford- able housing option for many American families." The growth of SFRs is also driven in part by difficulties in achieving homeownership, accord- ing to the paper. Among survey respondents who planned to purchase a home within the next five years, the financial require- ments of purchasing a home such as down payment and a sufficient credit score were cited as primary concerns. SFRs allowed these aspiring homeowners to pursue single-family living either in the interim or longer term. The paper also indicated that out of the 22.6 million renter households living in SFRs, about five million live in rural areas, while 17.6 million live in non-rural areas—comprising 66 percent of the stock. According to Freddie Mac, this speaks to the impor- tance of this form of rental, meet- ing the needs of rural residents. Conversely, SFRs are also an im- portant part of the rental market for households living in Areas of Concentrated Poverty (ACP). In non-rural markets, where there is a greater concentration of homes, more middle-tier and insti- tutional involvement was recorded at 4.8 percent of properties as- sociated with portfolio sizes 51 to 2,000 properties and 1.6 percent in portfolios with greater than 2,000 properties—leaving 93.6 percent of the properties in small and very small portfolios.

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