Study shows stress building in Tri-Cities single-family rental markets

A new single-family rental risk analysis points to higher than average risks for Tri-Cities investors. While a risk assessment doesn’t necessarily signal an increase in defaults, it offers insights into how the so-far lackluster local economic recovery has affected mom-and-pop rental market investors

An earlier analysis found Sullivan and Washington counties were Tennessee’s most vulnerable counties if a tepid economic recovery extends to the housing markets.

The current analysis shows seven Tri-Cities counties have risk scores above the national average. All but one has a higher score than Shelby County’s 57. That’s Tennessee’s highest risk market for the study’s 100 largest counties.

The RealtyTrac Rental Property Risk Report says the financial impact of COVID-19, resulting in job losses, and government-imposed eviction moratoria have all contributed to rental properties stress, leading to potential default – especially those that are highly leveraged.

Researchers used real estate and mortgage records from ATTOM Data Solutions to analyze data from 3,143 U.S. counties against three criteria to see those that might be the most at-risk of going into default. That data included the percentage of rental properties in the county, the unemployment rates, and the leverage level (LTV).  A weighted average based on a scale of 0 to 100 with 100 representing the highest potential risk was the outcome. Counties with a high percentage of rental properties, high unemployment rates, and high LTV ratios had a higher risk score, while counties with a low percentage of rental properties, low unemployment rates, and low LTV ratios were considered less at risk.

The average U.S. risk score was 50.2.  Almost half of the counties – 1,515 – had above-average scores.

Here’s the risk score for the local counties:

  • Greene – 81.9
  • Johnson – 79.14
  • Unicoi – 77.64
  • Hawkins – 77.65
  • Carter – 69.03
  • Sullivan – 65.05
  • Washington – 55.6

“The job losses in a handful of severely impacted industries due to the COVID-19 recession have disproportionately affected renters,” said Rick Sharga, RealtyTrac executive vice president. “Federal, state and local governments have responded by enacting eviction bans to protect tenants, but in doing so have inadvertently put many landlords at risk. And the longer the eviction bans are in place, the higher the likelihood that these landlords are going to default on their mortgages, declare bankruptcy, or be forced to sell off properties at distressed pricing, which could hurt local housing markets.”

“While it’s completely appropriate that the government has taken steps to protect tenants from eviction during a global pandemic, it’s also completely unrealistic to assume that landlords can bear 100% of the financial burden of missed rent payments,” Sharga said. “There’s a misperception that most landlords are corporations or institutional investors. The fact is that almost 90% of single-family rental landlords are smaller investors who own fewer than 10 properties, are often highly leveraged, and simply don’t have the financial strength to weather this storm. And financial failure by these investors has implications for both their tenants and the communities where their rental properties are located.”

There are about 50,000 investor-owned residential properties in Sullivan and Washington counties alone. So far, local property managers and investors have not signaled a high volume of renters who are not paying rents. One said there’s always some defaults, but in today’s market, those who were a problem before the pandemic are still the largest portion who are now a problem.

Here’s how the jobs loss situation looked at the end of the year. January’s local labor market reports will be available next month after the annual Bureau of Labor Statistics (BLS) annual revision.

At the end of the year, the Tri-Cities had 6.100 fewer jobs than it did at the beginning of the year. Compared to the 2019 total, the Tri-Cities had almost 9,500 fewer jobs. The local jobs market was on the verge of recovery to a pre-Great Recession level when COVID-19 hit. The 2020 annual preliminary total is at a 10-year low for nonfarm jobs. And local real household incomes peaked in 2008 and have yet to recover.

Local home prices and rents have increased faster than wages for the past two years. The most current Rental Affordability Index from ATTOM shows Carter Co. renters are spending 32.6% of their income on housing. The benchmark for what people should pay for housing is 30%.

Here’s the share of income renters in the other counties are paying:

  • Greene – 28.7%
  • Hawkins – 25.7%
  • Sullivan – 22.6%
  • Washington – 27%

The most current report listing rental vacancies shows the Kingsport-Bristol Metropolitan Statistical Area (MSA) had a 5.5% vacancy rate for its 29,131 investment properties. The Johnson City MSA had a 4% vacancy rate for 20,101 residential investment properties.

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Categories: REAL ESTATE

1 reply

  1. I agree with your source that stated, “… those who were a problem before the pandemic are still the largest portion who are now a problem.” In light of this situation, it becomes even more important to hire a very good property manager.

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