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Single-Family Rental Yields Are Softening

Wednesday, October 25, 2017   /   by Carlos J Higareda

Single-Family Rental Yields Are Softening




The overall health of single-family rental market is strong, with a nationwide effective gross yield (EGY) of 8 percent, according to the quarterly rental investment index released by HouseCanary, a data analytics company for real estate professionals. At the state level, there are vast differences between average yields in the Midwest and South, where EGYs range from 8.3 percent to as high as 12.7 percent. In the West and New England, no state surpassed 7 percent. 


“HouseCanary’s latest [rental investment] results show that the recalibration of home prices to historic norms is continuing to put overall downward pressure on effective gross yields for the single-family rental sector,” says Alex Villacorta, Ph.D., HouseCanary’s executive vice president of analytics. The data suggests that rental prices might offset the affordability of renting vs. buying, which could indicate a surge in house buying demand in 2018.


Of the top 50 metro areas surveyed, only three showed positive growth in yields over the second quarter, suggesting that nationwide, the growth of rents is slowing relative to that of home prices, Villacorta says.


“In particular, the accelerated growth in the Western and Northeast regions over the past few years has seen the strongest effect of compressing yields as the cost to acquire continues to increase,” he says.


Pittsburgh saw the largest increase at 2.3 percent over last quarter with a 12.3 percent EGY.


The top five highest yielding single-family rental markets in the third quarter include:



  1. Rochester, N.Y.: 13.9%

  2. Memphis, Tenn.: 13.7%

  3. Buffalo-Cheektowaga-Niagara Falls, N.Y.: 13.3%

  4. Birmingham-Hoover, Ala.: 13.1%

  5. Cleveland-Elyria, Ohio: 13%


The lowest yielding single-family rental markets in the third quarter were:



  1. San Jose-Sunnyvale-Santa Clara, Calif.: 3.5%

  2. San Francisco-Oakland-Hayward, Calif.: 4.3%

  3. Los Angeles-Long Beach-Anaheim, Calif.: 4.5%

  4. San Diego-Carlsbad, Calif.: 4.8%

  5. New York-Newark-Jersey City, N.Y., N.J., Pa.: 5%


Despite holding the top yielding location in the country, Rochester’s EGY dropped 3.3 percentage points from the second quarter, indicating a softening at the top of the market, HouseCanary data shows. New York state’s overall EGY was only 6.7 percent.


Statewide, Mississippi led the nation with a 12.7 percent single-family rental market yield, followed by Alabama, West Virginia, Indiana, and Ohio, all above 12 percent in the third quarter.


Montana and North Dakota, both at 7 percent EGY, saw the decreases in the third quarter, from 9.6 percent and 11.2 percent, respectively.


Download the entire report for more market information.


Source: HouseCanary Rental Investment Index



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