Altos: No Sign of Single Family Rental Weakness. Yet.

Rents in major investor markets are showing no sign of weakness despite expectations that the housing recovery will put pressure on single family vacancy rates, according to a report by the CEO of Altos Research

Accelerating household formation may be driving demand for both home purchases and rentals, preventing any slowing of demand in rental markets. But investors, if they haven’t already, will experience Cap Rate Compression as the ratio of costs-to-income on properties is weakens.

“Every week, new investment purchases are a worse deal for investors” said Mike Simonsen COE and Co-founder of Altos Research in report posted on the Altos blog this week.

By now it should be clear to everyone that a multi-year home price rebound started in January of 2012. It should also be obvious to everyone that home prices in 2013 are on a tear. The rest of 2013 will remain strong, with rising home prices. The data is already in and it is very clear, said Simonsen.

Each week, Altos Research surveys over 1 million apartments and single family homes for rent around the country. Simonsen sampled rents on a cross-section of the big investor markets, looking at price per square foot across all rentals, including single family homes, condos, and apartments. All data is weekly measurements.

Key findings:

  • Rents in Phoenix showing no signs of weakness.
  • Rents in Los Angeles and Orange County appear to be holding.
  • Market Rents in Dallas climbing notably.
  • The Florida markets appear to be keeping the positive momentum.
  • Las Vegas is one market where rents show any sign of weakness last fall. Though this spring they’ve resumed their climb.

The rental markets in most of the hot investor cities have not yet come under pressure. “My suspicion is that this is because rents and home prices both respond to new demand of accelerating household formation. Some of these new household are buyers, some are renters, but we’re all moving out from Mom’s basement,” wrote Simonsen.

“So rents are up a little bit. They’re clearly not climbing as fast a home prices.”

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