Through the Great Recession and its immediate aftermath, foreclosures hit the market at rates not seen in recent memory. Nationally, the number of foreclosure sales jumped from fewer than 350,000 annually before 2007 to a peak of nearly 1.3 million in 2010. Some places, like Phoenix, Bakersfield, Calif., and Atlanta were hit harder than others. Those foreclosures, combined with a severe credit crunch and hobbled job market, left fewer people able to buy homes and more looking for rentals.
With foreclosures piling up and home values falling, in stepped the single family home investor. Across the country, both institutions and individuals began buying single family homes and converting them to rentals. In 2006, 13.2% of all single family homes were rentals. By 2014, that share had grown to 16.9%. This represents an additional 2.8 million single family rentals on top of what would be expected had the rate held at the 2006 level. This dramatic shift has happened against a back-drop of steadily declining for-sale inventory and affordability woes for both renters and buyers looking for homes in which they actually plan on living. Nationally, depending on what Census data you use, single family homes as a share of all residential rentals peaked sometime between 2014 and 2016, and has dropped slightly since then.
Beyond that though, we wanted to find out what areas of the country have seen the most dramatic swings in single family rentals, what factors help explain those swings, and where those investments seem to have paid off most for buyers. Here are a few takeaways:
- Detroit, Las Vegas, Memphis, Tenn., and Fort Lauderdale, Fla. saw the biggest jumps in the single family home share of rentals between 2006 and 2016–all surging by nearly 10 percentage points.
- Charleston, S.C., Albany, N.Y., and Silver Spring-Frederick-Rockville, Md. were the only three metros among the 100 largest that registered drops in the portion of rentals among all single family homes.
- Places with the highest foreclosure rates, the deepest employment losses or some combination of those two factors experienced the most growth in single family rentals.
| Places with the biggest/smallest swings in single family rentals | |||||
| Metro Area | Percent of Single Family Homes That Are Rentals 2006 | Percent of Single Family Homes That Are Rentals 2016 | Percentage Point Change in Single Family Homes That Are Rentals 06-16 | Employment losses during Recession (Local Peak to Trough) | Foreclosure Rate 2008 through 2012 (per 10,000 homes) |
| Detroit, MI | 14.69% | 24.65% | 9.96 | -18.66% | 14.65 |
| Las Vegas, NV | 17.76% | 27.21% | 9.45 | -7.89% | 29.74 |
| Memphis, TN | 15.84% | 25.09% | 9.25 | -6.77% | 6.75 |
| Fort Lauderdale, FL | 8.28% | 17.39% | 9.11 | -12.80% | 4.94 |
| Atlanta, GA | 11.58% | 19.91% | 8.33 | -7.89% | 15.55 |
| Greensboro-High Point, NC | 19.50% | 20.38% | 0.87 | -8.15% | N/A |
| Little Rock, AR | 18.36% | 18.80% | 0.44 | -3.06% | 1.59 |
| Silver Spring-Frederick-Rockville, MD | 7.66% | 7.62% | -0.04 | -1.32% | 0.29 |
| Albany, NY | 7.34% | 7.05% | -0.29 | -4.75% | 0.34 |
| Charleston, SC | 15.38% | 14.93% | -0.45 | -4.15% | 1.35 |
| Click here to download the full data set looking at the largest 100 metros. | |||||
So where have investors done best? Keeping it simple, we assume a home was purchased and rented out sometime in 2011—a year after foreclosure sales peaked and a year before home prices bottomed out. We consider rising single family home values as a benefit, but place more value on rising single family home rental rates. When we do this, we find:
- Of the 10 places that notched the largest increases in the percentage of single-family rentals from 2006 to 2016, Cape Coral-Fort Myers, Fla. appears to have handed investors the best returns. Following the recession, from June 2011 to June 2018, home values soared 89.6%, while rental rates on single family homes rose 59.1%.
- Detroit, Mich. is a distant second for best investment results though driven entirely by growth in home values. Over the same seven-year period, single family home values shot up 162.7% while rents have remained flat.
- On the other hand, Tucson, Ariz., where rentals of single family homes grew from 14.8% in 2006 to 21.1% in 2016, has been less stellar for investors. From June 2011 to June 2018, single family home values climbed 38.4% and rents 13.6%.
- Beyond just the metros with the most single family conversions, San Francisco, Seattle, and Denver, while not among those places with the most single family home investor activity, have also produced good returns. Both home values and rental prices have appreciated strongly.
- With modest 6.4% single family home value appreciation and a 4.8% drop in rents since 2011, El Paso, Texas has been the metro with the poorest returns for investors. This is good news for renters though.
- Today’s price and rent appreciation can mostly be explained by a strong economy and rising employment.
| Among Places With The Most Single Family Conversions to Rentals, Where Have Investors Done the Best and Worst? | ||||
| Metro Area | Percent Change in Home Values 2011 to 2018 | Percent Change in Rent Values 2011 to 2018 | 2011 to 2018 Employment Change | Investor Rank 2011-2018 (Among the largest 100 metros) |
| Cape Coral-Fort Myers, FL | 89.6% | 59.1% | 28.9% | 1 |
| Detroit, MI | 162.7% | 0.0% | 11.0% | 14 |
| Riverside-San Bernardino, CA | 85.3% | 24.8% | 20.3% | 17 |
| Fort Lauderdale, FL | 85.3% | 23.9% | 17.1% | 20 |
| Tampa-St. Petersburg, FL | 81.7% | 24.6% | 18.1% | 21 |
| Phoenix, AZ | 90.1% | 20.8% | 19.7% | 23 |
| Las Vegas, NV | 100.2% | 11.6% | 20.7% | 30 |
| Atlanta, GA | 59.7% | 22.9% | 19.8% | 36 |
| Memphis, TN | 28.5% | 18.6% | 5.2% | 54 |
| Tucson, AZ | 38.4% | 13.6% | 6.3% | 57 |
| Click here to download the full data set looking at the largest 100 metros. | ||||
Methodology
A combination of American Community Survey (ACS) 1-year and IPUMS ACS and CPS microdata were used to determine shares of single family rentals at the national and metro-level. To calculate changes in employment over various time periods, we use a 12-month rolling average based on the Bureau of Labor Statistics Local Area Unemployment Statistics program. For calculations of peak and trough employment around the recession years, the peak had to occur after December 2006 and before February 2010 and the trough had to occur after December 2008 and before January 2013. The prerecession peak in El Paso and San Antonio were hard-coded at 2009-01 and 2009-02, respectively.
We used proprietary data to evaluate changes in home values, rents and foreclosure rates from 2008 through current.
In evaluating where investors have done best since 2011, we measured price appreciation of single family homes using both rental values and sales values, but weighted rental appreciation as three times more important.
Citations:
IPUMS-USA, University of Minnesota, www.ipums.org
United States Census Bureau / American FactFinder. “B25032 : TENURE BY UNITS IN STRUCTURE.” 2005 – 2016 American Community Survey 1-year data. U.S. Census Bureau’s American Community Survey Office, 2011. Web. 31 July 2018 <http://factfinder2.census.gov>
