A wave of "accidental landlords" is shaking up the rental housing market, proving to be a thorn in the side for large institutional investors. Unable to sell their homes at desired prices, more ordinary homeowners are opting to rent out their properties instead, contributing to a rise in supply that's weighing down rents in major US cities, per the Wall Street Journal. Realtor.com reports that in May, delisting properties jumped 47% nationwide.
Projections from John Burns Research & Consulting estimate rents in the top 20 markets for single-family homes will climb just 0.8% this year, the most sluggish pace since 2011, per the Journal. This slow growth clashes with investor expectations, who saw strong demand from priced-out would-be buyers and healthy tenant finances as a recipe for continued rent gains. Instead, homes lingering unsold are shifting into rentals, particularly in Sunbelt cities, and converting for-sale listings to rentals is becoming increasingly common.
Data from Parcl Labs highlights the trend: Only 28% of homes listed at the start of summer sold, leaving nearly 2 million properties on the market, up 20% from a year ago. Investors have placed their money in six locations in particular: Dallas, Tampa (Florida), Atlanta, Phoenix, Houston, and Charlotte, North Carolina. Those cities hold 37% of the nation's large institutional real estate, Parcl found, per the New York Times.
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Large landlords such as Invitation Homes are feeling the squeeze, reporting declining rents on new leases in oversupplied markets, though they're compensating by raising rents for existing tenants, per the Journal. This strategy has worked for now, but as the gap between old and new rents widens, tenants may be more likely to move, potentially increasing turnover and reducing income.
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