Second quarter 2017 data in the HouseCanary Rental Investment Index (HCRI) confirms the strength of the single-family rental market, with an Effective Gross Yield averaging 8.0 percent nationwide, the company recently announced. The HCRI measures Effective Gross Yield, a profitability metric, at national, state and zip code levels.
Notable in the second quarter is not just variance in yields between U.S. regions and metropolitan statistical areas (MSAs), but within individual MSAs. In St. Louis, for example, top zip codes generate 29.3 percent Effective Gross Yield, while the lowest generate only 4.9 percent yield. This incongruence in yields points to the cyclical variation across the country, with some markets deep into cap rate compression, and other markets still experiencing yield expansion.
Historically, data in the single-family rental market has been highly splintered, creating an array of barriers to entry for most investors, especially those looking to invest remotely or at scale. HouseCanary’s Rental Investment Index can alleviate those barriers by allowing single-family rental home investors, lenders, and renters to survey a wide breadth of markets across the U.S. with confidence in the most accurate home values and rental values available.
“The notion that an investor sitting in Chicago can now easily pinpoint a viable property in Kansas City without ever leaving their desk is a complete game changer for this asset class,” says Dave Garland, a single-family rental investor and partner at Second Century Ventures. “The ability to know where to invest with this level of granularity has never been possible before, and it is going to revolutionize this market.”
Effective Gross Yield by State
A state-by-state look at Effective Gross Yields highlights the continued fragmentation in the national real estate cycle, with effective yields in New England and on the West Coast suppressed by rising home values and far outpaced by effective yields in the Midwest. Despite this, effective yields on the coasts did grow slightly over the second quarter, bucking expectations that home price appreciation would outpace rent growth over this period (though it still may over the long term).
In the Midwest and the South, high effective yields only grew further, led by Mississippi, Indiana, and Ohio. All three eclipsed 12.0 percent effective yields on average, higher than any state last quarter, led by Mississippi at 12.9 percent. The two regions are still the top performers nationwide. The lake states have not quite reached the high average yields seen in the Midwest and South, but are still comfortably above most coastal states.
Effective Gross Yield by MSA
Of the top 50 MSAs in the country, 28 surpassed the nationwide average Effective Gross Yield of 8 percent this quarter. Rochester, the national leader in Effective Gross Yield, outpaced the runner-up by 320 basis points, and more than doubled the national average. Unsurprisingly, the bottom of the list is flooded with MSAs from California, where the growth in housing prices has consistently outpaced growth in rents. Download Effective Gross Yields by MSA.
For more information, please visit www.housecanary.com.
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