TheMReport

TH E M R EP O RT | 17 COVER STORY "The Fannie Mae deal said 'You know what? This is a real business, and this is business isn't going away anytime soon.' That's really what it comes down to," Tesch said. "It legitimized a busi - ness that has, quite frankly, been there forever." But despite the entry of the big- ger guys, individual investors will continue to dominate—institutions will just be there to provide more capital, Cisterna said. "You're still going to see the market dominated by individual investors," Cisterna said. "I can tell you there were hundreds, if not thousands, of participants in the market that we're watching that deal and hoping that was a signal that Fannie is starting to view this state in a similar manner as they do multifamily. With that, that means they'd start underwrit - ing these properties based on the income of the property and not the income of the borrower, which is what has really hamstrung a lot of the smaller investors in this space—not being able to access cheaper, longer-term capital." And Hovland agrees. The Fannie Mae deal will not only bring a lot more capital into the space, he said, but it will also make rates more affordable. "Right now, it's much more ex - pensive to get a loan in that area," Hovland said. "When the agencies come in with their current lending rates, which are by far the most attractive in the SFR arena, I think we're going to see a lot more money pumped into SFRs." There's also another, lesser- known benefit of the institu - tionalizing of SFR. According to Cisterna, it's improving tech, too. "Technology and services have improved dramatically over the last four years," Cisterna said. "A lot of those services and technol - ogy, they were never invested in the single-family space, because there were never owners large enough to commit to that type of spend. Now there are." If You Buy it, Renters Will Come T he entrance of Fannie Mae and other big institutions aside, there are other signs that the SFR market is only going to continue to grow. Namely? Renting itself is growing. The Rental Protection Agency estimates that more than 2,600 people enter the U.S. rental market every day, and according to HomeUnion's report, rental vacancies are set to bottom out later this year. "Vacancy will reach a cycli - cal low," the report stated. "SFR vacancy is projected to decrease 30 basis points to 6.4 percent." There are dozens of reasons for this uptick in renting—and the subsequent downturn of home - ownership. For one, Baby Boomers are retiring, and many are selling their homes to pay the bills. "Americans are just ridiculously underinvested for retirement," Ball said. "So the aging Baby Boomer population, they're going to have to sell their houses to pay for their retirement. They won't be able to afford to go to where people retire. They're going to stay where they are. Some of them will move into apartments. Some of them will move into assisted care living. Some of them, at least for a period of time, will rent houses." According to Hovland, from 2005 to 2015, 9 million rental house - holds were formed, and 5 million of those were Baby Boomers. But Boomers aren't the only generation to blame for the recent rise in renting. Millennials, who are starting their families later, traveling more, and are generally slower to purchase homes than their prede - cessors, are also playing a role. "Millennials don't want to own anything," Fitzgerald said. "They don't want to keep a yard. They don't want to put their trash cans out. They don't want to paint a house. They don't want to mow a lawn. They want to go to work, make their money, and go play. I think that a large part of why people now rent more than they buy is just a shift in the mentality about what's important." But it's more than just atti - tudes or lifestyle choices that are keeping millennials in the renting arena, Cisterna said. "They've shown that mil- lennials are not as keen to be homeowners as the previous generation," Cisterna said. "But there's also certain things in their factor that limits them from being a homeowner even if they wanted to. Right now, a large percent - age of the millennial generation doesn't have the luxury of even choosing to be a homeowner." One of those limiting factors? Record-high student loan debts. "The college debt issue is a big crisis in this country," Green said. "Folks are coming out of school burdened with $100,000 to $200,000 in debt and they just have to pay off that college loan before they can get a mortgage." The homebuyer capacity of millennials has dropped 9 percent since 2016, according to Fitch Ratings, and that's largely due, as Green said, to rising student loan debt. In the first quarter of this year alone, student debt grew by $34 billion. It now tops out at over $1.34 trillion across the na- tion, according to the New York Federal Reserve. Millennials are also more transient than other segments of the population. They pick up and move for jobs often, and many of them even work from home, so they're not tied down to particu - lar cities or economies—and that means renting is simply a more fit- ting option. According to Hovland, technological advances may cause that transient sector of the popula- tion to grow even further. "People will be able to live fur- ther away from work," Hovland said. "High-speed internet avail- able in everyone's home today enables people to work at home more. That work component is going to become much smaller of a factor of where people live." Can Anything top SFR? U ltimately, the question isn't what's driving the single-fam- ily rental market on its upward trajectory. It's what will stop it. "The big thing that I think everyone's trying to figure out is what curbs the demand for the investment property?" Cisterna asked. "There's nothing that really any kind of economist or housing market analyst can point to that is potentially going to curb the demand for rental housing. The only thing that kind of starts to curb that demand that we can, to a certain degree, is building; add - ing new supply." But until that happens, the SFR space—and all the opportunities that come with it—will just keep chugging along. ALY J. YALE is a freelance writer and editor based in Fort Worth, Texas. She has worked for various newspapers, magazines, and publica - tions across the nation, including the Dallas Morning News and Addison Magazine. She has also worked with both the Five Star Institute and REO Red Book, as well as various other mortgage industry clients. "Folks are coming out of school burdened with $100,000 to $200,000 in debt and they just have to pay off that college loan before they can get a mortgage." —Bill Green, CEO, LendingOne

• Cover