Gross single-family rental yields for Washington and Sullivan counties were down in the third quarter, but that doesn’t necessarily signal a down market for landlords – especially in Sullivan County. At the same time, the multi-family market in Sullivan is undergoing growth disruption while the Washington County market is stable and many of the large complexes are reportedly at or near full occupancy.
Attom Data Solution’s Single-Family Rental Report and the Department of Housing and Urban Development’s (HUD) 2018 Fair Market Rents (FMR) point to a single-family rental housing market undergoing some changes. Rents for three-bedroom homes were up 3% in Sullivan and 2% in Washington in the Attom Report. FMRs were up, and the Sullivan County increases were substantial.
Shane Abraham, founder and operating principal of Universal Development & Construction, says the Washington County multi-family supply-demand balance “is best I’ve seen since getting into the business.” There are still pockets of demand, but things look very balanced, he added. Sullivan County is another matter. He said he would have to look very hard at anything new in Sullivan County.
Several property Sullivan County property managers also said they were uneasy with what they see in the market. New complexes that have come online have ramped up competition and has some managers saying it looks like there’s more supply than demand. Sullivan County and Kingsport got involved with tax incentives for apartment complexes in an attempt to make their jurisdictions more popular to new residents and to cash in on the success they saw their neighbor to the south making. And ground has just been broken on the Town Park Lofts, a $32 million 263 apartment-retail project at the old Supermarket Row side.
So far, the new apartment complexes that have opened have offered attractive incentives for new residents. While data is sketchy, an anecdotal accounting shows the net effect has been attracting apartment dwellers from other Kingsport complexes to the new developments. That has upped the marketing effort of existing complexes smarting from the occupancy losses at a time when they are under pressure from owners to increase profits.
Tommy Harvel, president of the Tri-Cities Apartment Association, said he sees more of the Kingsport market since that’s where his business is located. “I think we’re getting to the category of all the multi-family supply we need.” He said he has focused his rental properties on the single-family market. “I can’t complain my occupancy rate,” he said. He attributed that to keep his rentals in good shape and making any upgrades quickly when there is a vacancy, so there’s not a long lag before it’s back on the market.
The Sullivan County multi-family market and the effects of local governments goosing the market will be closely watched over the next two years for successes levels and if there are any unintended consequences.
Attom’s report also shows the single-family rental market activity for both individual and institutional investors is softening. Over the past five years, investors were a big factor in absorbing the excess inventory of homes – especially in the $200,000 and under price range. According to Attom the share of non-owner occupied single-family home sales in Sullivan County has been 30.6% during the past five years. In Washington County, the share was 29.1%. Some of those sales were for rental properties, and some were bought by flippers. According to the Census Bureau, 37.7% of the households in Washington Counties were rentals last year. In Sullivan County, the share was 28.4%.
During the third quarter, institutional investors accounted for 2.2% of single-family sales in Sullivan, down from 2.6% last year and 2.3% in Washington County, down from 3.2% last year. That follows the national trend. There’s also some indication that some investors are now looking at the current crop of new single-family and townhome properties are investment properties. Attom bench lines institutional investments from individual investors based on 10 sales a year.
Attom’s Q3 report shows that the gross single-family rental yield in Sullivan was 8.9%, down from 9% during the same period last year.
Yields in Washington County were 7%, down from 7.6% last year.
Q3 rental yields peaked in Washington County in 2015 at 9.5%. They peaked in Sullivan County at 9.3% in 2012.
The report lists the Q3 rent for a three-bedroom Sullivan County property as $887, up 3% ($27) from last year, and $902, up 2% ($18), in Washington County.
HUD’s 2018 Fair Market Rents show increases for all ranges of rentals, but the increases are larger in Sullivan County and the Kingsport-Bristol MSA. A full listing of the FMR for efficiencies, one, two, three and four-bedroom homes by ZIP code is available at the HUD Web site.
Here’s what the FMR benchmarks look like in the Johnson City and Kingsport metro areas compared to last year’s final FMR. (The 2018 FMR is the median for all of the MSA zip codes compared to the final 2017 MSA FRM)
Johnson City MSA
Efficiency – $500, up $28 (5.9%)
One-bedroom – $540, up $13 (2.5%).
Two-bedroom – $680, up $12 (1.8%).
Three-bedroom – $860, up $14 (1.7%)
Four-bedroom – $1,000 – no change
Efficiency – $500, up $47 (10.4%)
One-bedroom – $520, up $41 (8.6%)
Two-bedroom – $680, up $44 (6.9%).
Three-bedroom – $900, up $64 (7.7%)
Four-Bedroom 980, up $66 (7.2%)
Landlords, property managers, and investors said one of the biggest headwinds facing both the multi- and single-family rental markets in the Tri-Cities is wage stagnation.