LOS ANGELES — Rental homes will remain an attractive option next year to would-be homebuyers sidelined by high mortgage rates and rising home prices, analysts say.
American Homes 4 Rent and Invitation Homes are two big real estate investment trusts poised to benefit from the trend, say analysts at Mizuho Securities USA and Raymond James & Associates.
Their outlooks boil down to a simple thesis: Many Americans will continue to have a difficult time finding a single-family home that they can afford to buy, which will make renting a house an attractive alternative.
It starts with mortgage rates. While the average rate on a 30-year mortgage fell to a two-year low of 6.08% in late September, it’s been mostly rising since then, echoing moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
The yield, which has hovered around 4.4% this week, surged after the presidential election, reflecting expectations among investors that President-elect Donald Trump’s proposed economic policies may widen the federal deficit and crank up inflation.
Analysts at Raymond James and Associates say they see mortgage rates remaining “higher for longer,” given the outcome of the election. Last week, they reiterated their “Outperform” ratings on American Homes 4 Rent and Invitation Homes, noting “we are increasingly confident in the longer-term outlook for single-family rental fundamentals and the industry’s growth prospects.”
They also believe the two companies will continue to benefit from “outsized demographic demand for suburban homes,” and the monthly payment gap between renting and owning a home, which they estimate can be as much as 30% less to rent.
Analysts at Mizuho also expect that homeownership affordability hurdles will maintain “a supportive backdrop” and stoke demand for rental houses, helping American Homes 4 Rent and Invitation Homes to maintain their tenant retention rates.
The companies are averaging higher new and renewal tenant lease rates when compared to several of the largest U.S. apartment owners, including AvalonBay, Equity Residential and Camden Property Trust, according to Mizuho. It has an “Outperform” rating on American Homes 4 Rent and a “Neutral” rating on Invitation Homes.
Shares in Invitation Homes are down 1.2% so far this year, while American Homes 4 Rent is up 4.4%. That’s well below the S&P 500’s 24% gain in the same period.
While individual homeowners and mom-and-pop investors still account for the vast majority of single-family rental homes, homebuilders have stepped up construction of new houses planned for rental communities.
In the third quarter, builders broke ground on about 24,000 single-family homes slated to become rentals. That’s up from 17,000 a year earlier. In the second quarter, single-family rental starts climbed to 25,000, the highest quarterly total going back to at least 1990, according to an analysis of U.S. Census data by the National Association of Home Builders.
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