As home prices continue to climb and mortgage rates begin to rise, many potential buyers are giving up on property hunting.
Unable to compete with investors — who often offer more than the asking price for a home in cash — traditional buyers are looking for single-family homes to 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 Modern Communities, has a 225-home rental community under construction at Rocking K Ranch, off Old Spanish Trail.
American Homes 4 Rent recently purchased 155 acres on Linda Vista Boulevard off Twin Peaks Road for a 441-person 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 properties in 22 states.
“We’re seeing several different rental products and new concepts, which is exciting,” said Will White, local land broker, Land Advisors Organization. “The rental product is brand new and offers good segmentation in major projects.
“The demand for land to build these projects is at an all-time high.”
Known as Build-For-Rent (BFR) developments, the trend was born out of the real estate crash when investors bought a bunch of foreclosed homes and turned 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 have been built over the past five years and are expected to grow significantly.
Over 10% of the raw land purchased in the South West over the past two years has been by BFR developers.
“The share of land purchased for construction for rental purposes has increased over the past two years as a flood of capital and rising single-family rents drive demand for development sites,” said Danielle Nguyen, Director of senior research at John Burns. Real estate advice. “Given the need for additional space and the increase in working from home, homes for rent offer consumers the option of living in a newly constructed home (and the) flexibility to move around.”
The average rent for a single-family home in the Tucson market is $1,847, an increase of 11.6% from 2021, according to real estate research group CoreLogic.
Meanwhile, the average price of new homes for sale is now $456,690 and the average resale price is $381,808.
On top of that, the average rate for a 30-year fixed mortgage hit 5.11% last week, up more than 2 percentage points from a year ago and the highest rate bred for more than a decade.
“There is rapidly growing speculation about what may take place in the Tucson market as well as housing in general with a combination of developments globally, the continued strength of the regional economy, the continued spread of housing activity south of Phoenix toward Tucson, the significant rise in mortgage interest rates in recent days and concerns about the impact of rising house prices, as well as the expected growth in the Tucson market for single-family rental properties,” said housing analyst Jim Daniel, with reports from RL Brown.
He said new home starts could level off due to rising material costs and supply chain backlogs, preventing a drop in prices.
“As we see it,” Daniel said, “it doesn’t seem reasonable to assume we’ll see relief from rising house prices in this region.”
Contact journalist Gabriela Rico at [email protected]