Single-family Rental:

Market Update and Rent

Growth Measurement

REALTOR University Speaker Series

May 24, 2017

Frank Nothaft, Chief Economist

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 Single-family Rental: Trends & Rent Growth Measures

Single-family rental (SFR) trends

SFR market growth

Single-family Rental Index

Only one-family properties
Arithmetic repeat-transactions model
Construct index for rent tiers

Applications of Index
Inflation measurement
Rent growth-vacancy rate analysis
Total return metric
Model SFR security performance

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2
 Homeownership Rate Hit 50-Year Low in 2016
10-million increase in renter households from 2004 to 2016

U.S. Homeownership Rate (percent)

70
69
68
67
66
65
64
63 63.4%
2016
62
61

Source: Census Bureau, Housing Vacancy Survey (CPS/HVS)

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Foreclosures, Short Sales Exceed 10 Million Since 2006
Completed Foreclosures and Short Sales (Thousands)
1,500,000

1,200,000

900,000

600,000
Short Sales
300,000
Completed
Foreclosures
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: CoreLogic National Foreclosure Report and MarketTrends

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 Large Demographic Tailwind Has Arrived
Population
in 2016 Largest Age
(Millions) Cohort
4.8
Median Age
First-time
4.6
Homebuyer Median Age All
Homebuyers
4.4

4.2

4.0

3.8

3.6

3.4
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45
Age in 2016
Source: U.S. Census Bureau, Population as of July 1, 2016, NAR 2016 Profile of Home Buyers and Sellers

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 Components of the U.S. Rental Stock
Occupied Rental Stock
(44 Million Homes)

Multifamily; 35%
One-family; 38%
Condo/Co-op; 7%
Manufactured Housing; 4% 2- to 4-family; 16%

Source: U.S. Census Bureau, 2015 American Housing Survey (1-family includes both detached and attached housing)

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 One-family Rental Homes Exceed 15 Million

One-family Occupied Rental Stock (millions) Growth in One-Family Rental Stock 2006-14
(50 largest rental housing metro areas)
16 2.7%
CAGR 140,000
14 3.3%
120,000
1.3%
12
100,000
10
80,000
8
60,000
6
40,000
4

2 20,000

0 -
2000 2005 2010 2015 0% 20% 40% 60% 80% 100% 120%

Source: Census Bureau, 2000 decennial census and American Community Survey; CAGR denotes Compound Annual Growth Rate

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 Rental Property Ownership

2- to 4-Unit 50 or More Unit

Properties Properties

Individual
Investor

Partnerships and
10% 1% 1% 1% 11% 1% 9% Corporations
1%
Financial
Institutions and
Pension Funds
87% 77%
Nonprofit &
Housing Coops

Other

Source: U.S. Department of Housing and Urban Development and U.S. Census Bureau, U.S. Rental Housing Finance Survey 2012, Table 2a, 2d
(Estate Trustees included in Individual Investor category)

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 CoreLogic Single-family Rental Index

Single-family Rental Index (SFRI) innovations:

Only contains rent data on single-family properties

(detached houses, attached houses and condominiums)

Uses CoreLogic Home Price Index repeat transactions

methodology (Shiller arithmetic model)

Creates rent tiers (measures rent growth by rent level)

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 Literature Review Review
(Brief) Literature
Bailey, Martin J., Richard F. Muth, and Hugh O. Nourse. "A
Regression Method for Real Estate Price Index
Construction." Journal of the American Statistical
Association 58.304 (1963): 933

Case, K.E., Shiller, R.J. (1987). Prices of single-family homes

since 1970: new indexes for four cities. New England Economic
Review. Sept./Oct. 45-56.

Shiller, R.J. (1991). Arithmetic repeat sales price estimators.

Journal of Housing Economics. 1 110-126.

Ambrose, Brent W., N. Edward Coulson, and Jiro Yoshida. "The

Repeat Rent Index." Review of Economics and Statistics 97.5
(2015): 939-50

Chen, Shu, and Molly Boesel, Repeat Rent Index Using Multiple
Listing Service Data, paper presented at AREUEA National
Conference, June 2016
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 Methodology
Modelling of repeat pairs: Same home, new tenant
Data from Multiple Listing Services
Example: a condos rental history
List date List List Mod. Time Close Close
Price Status date price
2007/05/11 1,400 Rented 2007/6/20 20:00 2007/6/20 1,350
Pair 1 2008/06/11 1,450 W.D. 2008/6/20 19:00 . .
2009/07/01 1,450 Rented 2009/8/12 20:00 2009/8/10 1,450
Pair 2
2011/05/11 1,500 Rented 2011/5/20 20:00 2011/5/20 1,500
Pair 3
2013/07/16 1,500 Rented 2013/8/4 20:00 2013/8/3 1,500

All Tiers includes all paired transactions

Four Rent Tiers: <75%, 75.1-100%, 100.1-125%, >125% of CBSA median rent
Index available for 70 CBSAs
National Index is weighted average of 40 CBSAs indexes, weighted by
aggregate rent value of CBSA rental stock (ACS median rent*rental stock)
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 Index Comparison
SFRI CPI Axiometrics CoreLogic HPI

Data Transactions Transactions

Survey Survey
Source (MLS) (Public Records)
Data SF SF +MF MF SF
Arithmetic Weighted Arithmetic
Method Median
Repeat Average Repeat
Price, Price,
Tiers Property No No Property Type,
Type Sales Type
Zip Code, Zip Code,
CBSA,
CBSA, CBSA, CBSA,
Geo level State,
National State, State,
National
National National

Revision Full series No Partial series Full series

Monthly,
Frequency Monthly Monthly Monthly
Quarterly
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 CoreLogic Single-family Rental Index: Applications

Improve rent growth and inflation measurement

SFRI measures rent change for new tenants
CPI rent indexes include all tenants, exhibits lagged changes

Analysis of effect of vacancy on rent growth

Natural Vacancy Rate models relate real rent growth to
deviation in vacancy rate from CBSAs equilibrium rate

Use to generate a total return metric for SFR

Couple with (net) appreciation (net out capital expenditures)
and operating expenses
Total return estimated for unlevered asset

Better basis to model SFR security performance

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13
Repeat Rent Index Captures Rent of New Tenants;
CPI Rent Indexes Exhibit a 12-Month Lag

Percent Change from Year Ago

6%

4%

2%

0%

-2%

-4%

-6%

Rent of Primary Residence Owners Equivalent Rent Repeat Rent Index

Source: BLS Consumer Price Index, CoreLogic Single-family Rental Index

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 SF Rental Index Measures Rent Growth:
Overall, by Tier, by CBSA
Percent Change from Year Ago
8%

6%

4%

2%

0%

-2% Low Rent Tier

Overall
-4% High Rent Tier

-6%

Source: CoreLogic Single-family Rental Index

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 Repeat Rent Index Similar to CPI Rent Over Longer-Term,
Different in Short-Term
5 Year Cumulative Percent Change 1 Year Percent Change
30% 6%

25%
4%
20%

15% 2%

10%
0%
5%

0% -2%

RRI CPI Rent RRI CPI Rent

Source: CoreLogic Single-family Rental Index, as of July 2016 & BLS

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 Houston Repeat Rents Declining Last 12 Months but CPI
Rent Still Up 4%

Percent Change from Year Ago Percent Change from Year Ago, RRI 12 Mo Lag

10% 10%

8% 8%

6% 6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%

CPI Rent
CPI Rent Repeat Rent Index Repeat Rent Index - 12 Month Lag

Source: CoreLogic Single-family Rental Index & BLS

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 Rent Growth Faster in Low-Vacancy Markets
One-percentage point lower vacancy rate leads to 0.5% faster rent growth
Rent Growth
(percent, 2015Q4 to 2016Q4)
7%

6%

5%

4%

3%

2%
Linear
1%
Trend
0%

-1%

-2%
2% 3% 4% 5% 6% 7% 8% 9% 10%
Rental Vacancy Rate (percent, 2016)

Source: CoreLogic Single-family Rental Index, U.S. Census Bureau Housing Vacancy Survey (Table 6), 28 metropolitan areas;
line represents a univariate regression

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 Total Return on SFR in Houston CBSA
Has Averaged 3% Per Year Since 2005

Total Return (percent, YOY)

18%

12%

6%

0%

-6%

-12%

-18%

Source: CoreLogic Home Price Index, CoreLogic Single-family Rental Index, BLS CPI less Shelter

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19
 Single-family Rental: Trends & Rent Growth Measures

Single-family rental (SFR) trends

SFR market growth

Single-family Rental Index

Only one-family properties
Arithmetic repeat-transactions model
Construct index for rent tiers

Applications of Index
Inflation measurement
Rent growth-vacancy rate analysis
Total return metric
Model SFR security performance

2017 CoreLogic, Inc. [NYSE:CLGX] All Rights Reserved. Proprietary.

20
 Where to find more information

Look for regular updates to our

housing forecast, commentary
and data at

http://www.corelogic.com/blog
The views, opinions, forecasts and estimates herein are those of the CoreLogic Office of the Chief
Economist, are subject to change without notice and do not necessarily reflect the position of
CoreLogic or its management. The Office of the Chief Economist makes every effort to provide
accurate and reliable information, however, it does not guarantee accuracy, completeness, timeliness
@CoreLogicEcon
or suitability for any particular purpose.
CORELOGIC and the CoreLogic logo are trademarks of CoreLogic, Inc. and/or its subsidiaries.

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