High Retention Rates Reported in Morningstar SFR Research

by Morningstar | Jun 19, 2017 | Article, Funding, Market & Trends, Single Family

As we move into the second quarter of 2017, Morningstar Credit Ratings LLC released their first quarter Performance Summary of Single-Family Rental Research showing a slight rise of single-borrower, single-family securitizations.

The Performance Summary showed a rise to 4.3 percent from just the previous month at 4.2 percent. However, higher retention rates for full-term leases performed within Morningstar’s expectations. The average retention rates gained some momentum for the fourth-straight month in a row and now stands at 79.8 percent.

The vacancy rates in metropolitan statistical areas of Fort Lauderdale, Sarasota-Bradenton-Venice, Florida are above average. With slight improved vacancy rates, Houston, Indianapolis and Memphis increased at or above the 8.0 percent rate in October 2016.

However, rents for properties backing single-family rental transactions increased by 4.1 percent from their properties contractual rents, this is an increase from 3.6 percent.

Single-Borrower Performance

Full-term lease average performance rates continue to improve. Single-borrower, single-family rental retention rates posted above 70 percent for March 2017. Overall turnover rates increased for the very first time in 2017 to 2.9 percent according to the most recent data available. Vacancy rates grew to 4.3 percent in April of 2017 but with additional lease expirations it could raise the rate over the next few months.

Average delinquency rates dropped from a revised 0.7 percent to 0.6 percent in March of 2017.

Rents grew 4.1 percent in April 2017. Increases are lower than prior year when rent increases were averaging 5.3 percent. It appears that the lower rent increases were driven by new tenants occupying properties.

The latest month which data is available, March 2017, vacant-to-occupied properties was at 3.5 percent with rent change for renewal properties at 4.1 percent.

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Multi-Borrower Performance

Out of the seven multi-borrower transactions only five loans were 30 days delinquent with one of those loans at least 90 days delinquent. The 90-day delinquent loan is 0.2 percent of the actual transaction balance and transferred to special servicing in June for default. One of the 30 days past due loans, making up 0.3 percent of the deal balance, is in foreclosure. The four other loans totaling 0.9 percent of transaction balance were transferred to special servicing.

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