Home Shortage Heightens Appeal of Apartments, SFR
The average monthly payment for a 30-year loan is now $1,926.
Bidding wars were the norm in March as the supply of new and existing homes remained at historic lows and prices soared, according to a recent analysis from Marcus & Millichap.
The median cost of an existing home increased 3% in March alone to $342,400, a price that shatters previous records. Prices have gone up 18.4% over the last year, the fastest pace of growth since the 1960s, causing the average monthly payment for a 30-year loan to tick up to $1,926.
Contrast that figure with the average effective rent for a Class A apartment: $1,787 per month. This basic math underscores the ongoing value of the multifamily asset class, according to Marcus & Millichap, particularly in suburban areas where millennials are heading as they look to settle down and start families.
“The tight supply and rising cost will delay many renters from transitioning to homeowners, providing a bright outlook for suburban rentals,” Marcus & Millichap analysts note in the report.
Demand for SFR among renters has skyrocketed since the pandemic, and in recent years the number of build-for-rent properties accounted for between 5 and 10% of all new homes constructed. That number is particularly increasing in the Sunbelt—especially in cities like Atlanta, Phoenix, and Houston—and SFR could increase competition for larger apartments in those markets, Marcus & Millichap predicts.
The SFR asset class is expected to eclipse multifamily, office, retail, storage, and hospitality growth by 2022, according to Walker & Dunlop, and the sector is among those with the strongest institutional investor interest. Walker & Dunlop estimates the SFR market to be valued at about $3.4 trillion; by comparison, the entire multifamily market is valued at $3.5 trillion.
As the SFR asset class grows in popularity, a variety of operators, national homebuilders, and institutional equity providers are flooding it with capital. Homebuilder Lennar launched a $4 billion SFR platform with lead investor Centerbridge in March, and JP Morgan Asset Management made a $625 million equity commitment last year to American Homes 4 Rent to develop approximately 2,500 homes in high growth markets across the West and Southeast.