Arbor Realty Trust (NYSE: ABR) has released a report that examines the state of the single-family rental (SFR) industry.

Arbor believes that 2019 will be looked back on as the year that the SFR business transitioned from a niche, alternative asset class to a mainstream property type.

Millennials are still struggling with crushing levels of student debt. This debt, combined with large down payment requirements, is driving the decision to rent a single-family home rather than buy one. That generation is catching up on household formation. As they are starting new families, many are deciding that the suburbs are preferable to downtown when raising a child.

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Arbor believes we will see more development of SFR properties in the future. The report notes that “Default rates have declined in 27 of the last 28 quarters and currently sit at 1.8%. The housing market’s return to health paired with the SFR sector’s favorable long-term outlook has created a need for a supply pipeline beyond distressed sales or vacant conversions.

Arbor concludes that “Slowing price growth across the entire U.S. housing market should continue to exert some upward pressure on cap rates. At the same time, growing capital sources, an appetite for acquisitions from some of the market’s biggest players, and the use of dedicated exchanges for SFR assets may allow the sector to achieve a degree of price independence from all other single-family homes. Holding all else constant, the balance of factors points to another banner year for SFR in 2020.”

You can download a copy of the full report here.

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