As home prices continue to rise and mortgage rates begin to rise, many potential homebuyers are turning their backs on house hunting.
Unable to compete with investors — who often offer more than asking price for a home in cash — traditional homebuyers are looking for single-family homes for rent.
Developers recognize that the interest and number of renter-only single family home communities is growing in the Tucson area and across the country.
Las Vegas developer Randy Bury, President of Moderne Communities, has a 225-home rental community under construction at Rocking K Ranch, off the Old Spanish Trail.
American Homes 4 Rent recently purchased 155 acres on Linda Vista Boulevard near Twin Peaks Road for a 441 single family rental community adjacent to the Tucson Premium Outlet Center.
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It would be the largest such project in Pima County to date, with others having between 200 and 300 homes.
As of December 31, American Homes 4 Rent owned 57,024 single-family homes in 22 states.
“We’re seeing several different rental products and new concepts, which is exciting,” said local realtor Will White of the Land Advisors Organization. “The rental product is brand new and offers a nice segmentation in the large projects.
“The demand for land to build these projects is at an all-time high.”
The trend known as Build-For-Rent Developments (BFR) emerged from the real estate crash when investors bought a number of foreclosed homes and converted them into rentals.
But being a tenant in an established neighborhood had its downsides, and tenants expressed an interest in having neighbors like them, Bury said.
The majority of these BFR communities were built in the last five years and are expected to grow significantly.
More than 10% of the raw land purchased in the South West over the past two years has been purchased by BFR developers.
“The proportion of rental housing in land purchased has grown over the past few years as a glut of capital and rising single-family home rents fuel demand for building lots,” said Danielle Nguyen, senior research manager at John Burns Real Estate Consulting. “With the need for additional space and the increase in working from home, rental housing gives consumers the option of living in a newly built home (and the flexibility to relocate).”
The average rent for a single-family home in the Tucson market is $1,847 — an 11.6% increase from 2021, according to real estate research group CoreLogic.
Meanwhile, the median selling price for a new home is now $456,690 and the median resale price is $381,808.
In addition, the average interest rate on a 30-year fixed-rate mortgage hit 5.11% last week — more than 2 percentage points higher than a year ago and the highest rate in more than a decade.
“There is rapidly growing speculation as to what may be taking place in the Tucson market, as well as housing in general, with a combination of developments on a global scale, the continued strength of the regional economy and the continued expansion of housing activity from Phoenix to south Tucson, the significant hike in mortgage rates over the past few days and concerns about the impact of rising home prices and expected growth in the Tucson single-family rental market,” said real estate analyst Jim Daniel, with RL Brown Reports.
He said new homes could flatten as rising material costs and backlogs in the supply chain prevent prices from falling.
“In our view,” said Daniel, “it does not seem reasonable to assume that we will see relief from higher property prices in this region.”
Contact reporter Gabriela Rico at [email protected]