Returns on Single-Family Rental Homes Decreasing in Three-Quarters of U.S. Counties; Mid- and High-Priced Markets Reaping Smaller Profits, Facing More Declines; Average Yields on Three-Bedroom Rentals Mostly Range From 5 to 10 Percent
IRVINE, Calif. – May 20, 2022 — ATTOM, a leading curator of real estate data nationwide for land and property data, today released a new Single-Family Rental Market report showing that profit margins on 3-bedroom single-family home rentals are declining annually in 2022 across most of the United States, and are slightly more likely to decline in areas that already have lower yields.
The report analyzed single-family rental yields in 212 U.S. counties with a population of at least 100,000 and sufficient rental and home price data in the first quarter of 2022. Rental and home price data was collected from ATTOM’s nationwide property database, as well as publicly recorded sales deed data licensed by the company (see full methodology below).
The report shows that average gross rental yields before expenses on three-bedroom, single-family homes purchased by landlords this year are decreasing in 72 percent of the counties included in the report. (The latest yields are based on annualized 2022 gross rent income divided by median purchase prices in the first quarter of 2022).
Most declines are less than one percentage point from rental yields in 2021. But rental yields are dropping in about three-quarters of markets where median home prices exceeded $250,000 in the first quarter of 2022. The report further shows that those markets commonly have smaller profit margins, with yields that mostly fall below 7 percent.
Meanwhile, gross returns are decreasing in two-thirds of markets where homes typically sell for less than $250,000, located mainly in the Midwest and South. Returns remain above 8 percent in more than half of those counties, despite the declines.
The downturn in single-family rental yields comes as prices that landlords must pay to buy properties are rising faster than rents. Median prices for three-bedroom houses increased at least 15 percent from 2021 to 2022 in half of the counties analyzed, while average rents went up by that much in only one-third of those markets.
“Investors who own single family rental properties have seen their margins compressed over the last year as home prices have risen faster than rental rates,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “The good news for these property owners is that their yields should improve as annual rental rates increase, and they should also benefit from home price appreciation over time.”
Housing prices soared last year – the latest in a decade-long boom – as a glut of home buyers continued chasing a historically low supply of homes for sale. Buyers kept flooding the market during a time when home-mortgage rates were below 3 percent and many households were seeking to trade congested areas most vulnerable to the ongoing Coronavirus pandemic for the wider spaces afforded by single-family homes and yards.
Single-family rental yields top 7 percent in half of nation
Among 212 counties with enough data to analyze in the first quarter of 2022, yields before expenses on three-bedroom, single-family rentals are at least 7 percent this year in 98 (46 percent) counties.
The top returns include Collier County (Naples), FL (yield of 16 percent); Atlantic County (Atlantic City), NJ (12.2 percent); Mercer County (Trenton), NJ (11.6 percent); Indian River County (Vero Beach), FL (11 percent) and Charlotte County, FL (outside Fort Myers) (10.7 percent).
The smallest 2022 returns on three-bedroom, single-family rentals are in Santa Clara County (San Jose), CA (3.1 percent); San Mateo County (outside San Francisco) (3.2 percent); Williamson County, TN (outside Nashville) (3.9 percent); San Francisco County, CA (3.9 percent) and Fayette County (Lexington), KY (3.9 percent).
Largest single-family rental returns in lowest-priced counties, smallest in most-expensive markets
Yields on new three-bedroom, single-family home rentals exceed eight percent in roughly six of every 10 counties where homes typically sold for less than $250,000 in the first quarter of 2022. They include Atlantic County (Atlantic City) (yield of 12.2 percent), NJ; Wayne County (Detroit), MI (10.7 percent); Jefferson County (Beaumont), TX (10.1 percent); Hamilton County (Cincinnati), OH (9.8 percent) and Montgomery County, AL (9.7 percent).
Yields are less than six percent in about three-quarters of counties with first-quarter median prices of at least $500,000. The smallest are in Santa Clara County (San Jose), CA (3.1 percent); San Mateo County, CA (outside San Francisco) (3.2 percent); Williamson County, TN (outside Nashville) (3.9 percent); San Francisco County, CA (3.9 percent) and Kings County (Brooklyn), NY (4 percent).
Fewer declines in rental returns in low-priced areas
Single-family rental yields are decreasing in about two-thirds of counties with median home values of less than $250,000, concentrated in the Midwest and South, while returns are dropping in three-quarters of markets elsewhere.
Counties with median home prices of less than $250,000 where yields are dropping the most include Fayette County (Lexington), KY (yield down from 6.1 percent in 2021 to 3.9 percent in 2022); Richmond County (Augusta), GA (down from 10.3 percent to 9 percent); Jefferson Parish, LA (outside New Orleans) (down from 9.7 percent to 8.6 percent); Onslow County (Jacksonville), NC (down from 6.6 percent to 5.6 percent) and Philadelphia County, PA (down from 9.2 percent to 8.1 percent).
Counties with median home prices of more than $500,000 where yields on new rentals are going down the most include Kings County (Brooklyn), NY (yield down from 7.6 percent in 2021 to 4 percent in 2022); New York County (Manhattan), NY (down from 9.3 percent to 6.9 percent); Norfolk County, MA (outside Boston) (down from 7.7 percent to 6.1 percent); Suffolk County (Boston), MA, (down from 6.7 percent to 5.3 percent) and Williamson County, TN (outside Nashville) (down from 4.9 percent to 3.9 percent).
Rents rising faster than wages in three-quarters of counties measured
Average three-bedroom rents are rising faster than wages in 155 of the 212 counties analyzed (73 percent), including Harris County (Houston), TX; Maricopa County (Phoenix), AZ; San Diego County, CA; Dallas County, TX, and Riverside County, CA (outside Los Angeles).
Wages are increasing faster than rents in 57 of the 212 counties analyzed (27 percent), including Los Angeles County, CA; Cook County (Chicago), IL; Orange County, CA (outside Los Angeles); Kings County (Brooklyn), NY, and Miami-Dade County, FL.
“The fact that wages are rising faster than rental rates in some of the country’s largest metropolitan areas could be due to COVID-19,” Sharga added. “The flow of urban renters to the suburbs, where they became homeowners, was accelerated by the pandemic, causing relatively high vacancy rates in places like New York, Chicago, and Los Angeles, and many of these markets are still recovering.”
Prices rising faster than wages in nine of every 10 markets
Median single-family, three-bedroom home prices are rising faster than average wages in 195 of the 212 counties analyzed (92 percent), including Los Angeles County, CA; Harris County (Houston), TX; Maricopa County (Phoenix), AZ; San Diego County, CA; and Orange County, CA (outside Los Angeles).
Wages are increasing faster than prices in just 17 of the counties analyzed (8 percent), including Cook County (Chicago), IL; Montgomery County, MD (outside Washington, DC); Westchester County, NY (outside New York City); Fairfield County (Stamford), CT, and San Francisco County, CA.
For this report, ATTOM looked at all U.S. counties with a population of 100,000 or more and sufficient home price and rental rate data. Rental returns were calculated using annual gross rental yields: from rental data collected and licensed by ATTOM, annualized and divided by the median sales price of residential properties in each county. ATTOM also incorporated weekly wage data from the Bureau of Labor Statistics.
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