During the Foreclosure Flood, four to six million foreclosures—about as many homes as are sold nationally every year—switched from ownership to rental, bringing the total of single family rentals to about 14 million, more than ever recorded.

The boom in single-family rentals has left an indelible mark on the nation’s housing economy.  The loss of these properties, most of the smaller, affordable units that are in high demand by today’s first-time Millennial buyers, may be the single greatest factor contributing to the chronic inventory glut.  Today, these starter homes are appreciating at about twice the rate of large luxury homes, according to Trulia.

Now that defaults have nearly disappeared and acquisition prices are soaring, the investor-owned single-family rental business has been turned on its ear.  Purchases have declined steadily despite the emergence of turn-key companies like Memphis Invest and Norada that sell,  finance and manage single family rentals.  A surging stock market may also be encouraging investors to stay in securities.

SFR Investors are Steadily Declining

New research by the Center for Real Estate Analytics at the Federal Reserve Bank of Atlanta found that in the Southeast, which include SFR hotbeds like Atlanta and most of the State of Florida, the share of investor purchases—a majority of whom buy to hold and rent,  had fallen to 13.9 percent from a high of 26.12 percent in September 2012.

The Atlanta Fed’s findings track closely with data from NAR’s monthly Realtors’ Confidence Index, which found that sales to investors fell to 17 percent of all sales in February from a peak of 25 percent in February 2009.  “Certain areas around the Southeast may have seen an increase, but investment activity does not appear to have increased in a material way across the nation,” concluded Jessica Dill, economic policy analyst specialist at the Atlanta Fed.

Institutional investors, who own about 1 percent of single-family rentals according to the National Home Rental Council, plan to reduce their purchases an average 19 percent this year, on track to total $62 billion, according to a new survey by Institutional Real Estate, Inc. (IREI), an institutional real estate investment consultant, and Kingsley Associates, a real estate research firm.

“The decline in new capital flows can be largely attributed to two primary factors: U.S. survey respondents reported real estate holdings exceeding their target allocations to real estate, which reduces the need for new capital commitments,” explains Jim Woidat, a principal at Kingsley Associates. “also, investors report a significant uncalled capital overhang of $47 billion, which also limits the need for new capital deployment.”

Are Landlords Cashing in?

With prices breaking all-time peaks and a three-year inventory drought driving supplies to multi-year lows, are significant numbers of e-year inventory drought driving supplies to multi-year lows, are significant numbers of mom and pop landlords selling?  Are enough of them selling to impact local market inventories?

An analysis of price and inventory trends in ten of the nation’s hottest single-family rental markets by Real Estate Economy Watch suggests some leakage already is underway.

Realtor.com makes available inventory data for 300 markets from its listing database.  With the vast majority of the properties listed on MLSs nationwide, Realtor.com is an accurate and timely source of inventory data.  REEW compared year-over-year changes in March list prices new listings and total listings for these ten market with the national average to see if inventory trends differ signification in different size markets.

List Price and Inventory Trends, March 2017

Market (by size)	Average March List Price YOY	March New Listings YOY	March Inventory YOY
National	+7.5%	-3.48%	-11.4%
Miami	+6.1%	+2.3%	-1.15%
Atlanta	+10%	+3.7%	-4.8%
Phoenix	+5.9%	+3.6%	-8.6%
Riverside	+$5.0%	+1.2%	-18.2%
Tampa	+17%	-7.2%	-24%
Las Vegas	+2.1%	+5.1	+2.1%
Nashville	+13.7%	-6.7%	+11%
Memphis	+10%	-9.1%	-22.1%
Fresno	+7%	+8.9%	+2.5%
Cape Coral	+2.9%	+1.8%	+15 .4%

Source: Realtor.com

Seven of these ten markets are experiencing year-over-year inventory declines that are less severe than the national average for March, including three of the five larger markets like Miami, Atlanta, and Phoenix.  Miami and Atlanta are suffering less than half the shortages that the nation as a whole faces this season. Four of the five larger markets reported new listings higher than last year in March, a particularly important month in the real estate economic calendar because it marks the opening of the spring sales season in most of the nation’s markets.

Among larger markets, Tampa is clearly an outlier.  Its inventory shortfall and March new listing decline significantly exceed the national averages. Could this be that other factors that impact inventories, such as underwater owners who cannot sell or excessive demand outweigh the impact of single family rentals in this larger market?  Or does the market share of SFRs controlled by institutional investors, particularly Blackstone’s Invitation Homes so dominate Tampa’s SFR market that Tampa inventory data are not the good barometer of small investor behavior?

In four of the five smaller former foreclosure markets in the analysis, Phoenix, Las Vegas, Fresno and Nashville, inventories are increasing over last year’s supply.  In three, new listings are doing better than the national average.  What could be causing this divergence from the national norm?

Las Vegas is especially interesting.  It was a bellwether of the foreclosure boom, where owners of hundreds of over-leveraged houses built during the boom defaulted when the bottom fell out of the market.  Today most of those foreclosures are single family rentals, and they make up a large percentage of the Las Vegas housing stock.  Currently, Zillow lists 1197 single family rentals available to rent in Las Vegas, about one-twelfth of the number of homes for sale.

Memphis is an outlier among smaller markets.  One reason could be its slow recovery from the crash and attractive acquisition prices available as late as 2014 when it ranked 9th in the country in the percentage of houses with negative equity; 27 percent of its of homes were “underwater”, and the average home price was still 10 percent below the peak of the housing market, according to a Tennessee State study on foreclosure-driven blight.[1]  Memphis has developed a mini-industry of turn-key investment firms that market, finance and manage single family properties for investors across the nation and abroad.  A large number of these have bought since the bust and are in it for the long-term.

In Nashville, on the other side of the state, both prices and inventories are soaring at double-digit rates.  Arre the supplies of new listings coming from landlords motivated by the opportunity to convert their appreciated value into cash?

Cape Coral, on Florida’s West Coast, is a vacation and retirement community that ranked among the top five foreclosure market during the bust. Cape Coral was notable for a real estate agent who drove prospective investors around town in a bus labeled “ForeclosureToursRUs.com.”[2]  Its single-family rental market is dominated by small investors who have held their properties for six to nine years and now may be selling and swelling local inventories.

Is the final act of the foreclosure flood now playing out?  Are significant numbers of the 4 to 6 million properties that turned into rentals returning to the fold? Are inventory levels rising simultaneously with year-over-year prices a sign that single family rentals are hitting the market in large numbers?  These are questions worthy of more systematic research because the answers could change the face of the real estate economy.