Evaluating Markets For SFR Return Potential

Beyond the Standard Indices- Evaluating Markets for Rental Return Potential

home-union-break-evens“The housing market is turning around. Maybe the silver bullet for housing is the single-family-for- rent, because it’s underpinning the market. It’s sopping up the excess.” – Tom Shapiro, Chairman of GTIS Partners in Bloomberg Businessweek

With that encouraging quote in mind, we will take a look at how some of the HomeUnion® cash flow zones are faring in the market:

According to realestate.msn.com, Memphis is ranked #2 among the top ten cheapest US cities to live in with the Cost of Living Index at 83.7 (National Average = 100).

Alabama Center for Real Estate’s quarterly report mentioned that the Alabama statewide Housing Affordability Index reached record levels at 241.2 in the second quarter (an increase of 16.1% from the second quarter of 2011). The index (Alabama average = 100) is a measure of home buying power derived from the state’s median income and median home price.

CNNMoney published an article that analyzes buy versus rent strategy for a few popular US cities. Based on Zillow’s definition of “Breakeven Horizon” (defined as the years of homeownership required before owning a home becomes more financially advantageous than renting the same home), HomeUnion® Cash Flow zones have less than 3-year horizon.

Buy and hold in the current economy?

HomeUnion® recommends long-term buy and hold to take advantage of the current rental investment market conditions. In a buy and hold situation,  investors benefit from monthly rental income cash flows, and they need not be concerned with immediate future home price increases or decreases as the US economy continues to be on its way to modest recovery with expected fluctuations. For owner occupied homes, the 30 year fixed mortgage rate quoted on Zillow for this week is at 3.36% down from 3.39% of last week, and the 15-year rate is at 2.73% – single family residential loan rates are also low.

There is yet another encouraging indicator from the National Association of Realtors: The median period a home was listed for sale on the market was 69 days in July, down by 29.6% from 98 days reported for July 2011.

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