TheMReport

14 | TH E M R EP O RT FEATURE A s housing prices continue to climb, it's no surprise the homeownership rate is dwindling. In fact, the U.S. rate of home- ownership is nearing its lowest point since 1965, with just 63 percent of the population own- ing their own home. For many, it's hard to fathom. Homeownership has long been a part of the American Dream, but with rising prices and over- whelming student loan debt keep- ing many potential buyers out of the market, it seems renting has become the new normal in much of the U.S. According to the U.S. Census Bureau, out of the 805,000 new households formed in 2016, a whop- ping 434,000 were renter house- holds. And since 2009? More than 7 million renters have hit the scene. And that number is only going to grow. According to independent real estate research fi rm Green Street Advisors, another 3.9 million renter households will likely join the market by 2020—37 percent of whom will choose single-family rentals over multifamily options like apartment buildings or duplexes. While this burgeoning single- family rental space might be wor- risome to longstanding mortgage lenders and service providers, hope isn't lost for the industry. In looking closely, the nation's trend toward renting may actually open up new doors. Investigating the Investing Uptick I t's easy to attribute the recent growth in the single-family rental sector to rising home prices, but there's much more to it than that, according to experts. While appreciating values—and subsequently, higher yields—have certainly made investing in single-family rental homes more attractive, there are dozens of other factors at work. Strapped inventory is one infl u- encer, according to Jeff Ball, CEO and President of Visio Lending, a mortgage company that specializ- es in long-term loans for landlords and investors. Ball says when inventory is low, investors can get a good deal on properties—largely because they pose less of a risk to sellers than traditional buyers do. "In an environment where inventory is tight, rental inves- tors actually pay slightly less than an owner-occupier, because they bring higher certainty to the transaction," he said. "Most sellers will take an investor's cash offer for a modest discount versus an owner-occupier who's got to go get a conforming mortgage." According to Jeffrey Tesch, Managing Director at RCN Capital, a private investment lender, lagging construction starts are also playing into those low inventory levels and helping the single-family rental market even further. "It's amazing," Tesch said. "The appreciation is tremendous be- cause there's very little new con- struction. If the single-family new construction market continues to be as constrained as it is, you will see more and more investors con- tinuing to add to their portfolios because of the nice returns." Construction on single-family homes has taken a downturn in recent months, with the lat- est Census New Residential Construction Report show- ing single-family starts down nearly 4 percent since April. According to Bill Green, CEO at LendingOne—a lender focused on investor, fi x-and-fl ip, and rental loans—when new construction wanes like it has, there's only one place for Americans to go. "Housing starts are down. So where are these people going?" Green postulated. "They're rent- ing. Until new housing starts get back to normal levels, I think we're going to see renting con- tinuing to grow." And Green's right. According to the recent Housing Market Index from the National Association of Home Builders, confi dence among builders in the single-family market is down—particularly in the South and Midwest. That means many home builders don't see an uptick on the horizon anytime soon. In his recent 2017 National Single-Family Rental Research Report, HomeUnion's Director of Research Stephen Hovland pre- dicted as much. For the remainder of the 2017, "Housing starts will remain well below peak levels," he wrote. "Builders are limiting activ- ity due to low margins for entry- level homes and high land costs." This continued low construc- tion only means one thing: the Opportunity Knocks As homeownership rates dwindle and the single-family rental market continues to grow, what options exist for traditional mortgage lenders and servicers? And what does the future look like as renting becomes more and more common? By Aly J. Yale

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