Pretium’s Housing Insights, September 2022


Pretium’s Housing Insights, September 2022

September 21, 2022


In forecasting home prices, the last housing cycle is a poor guide for this one

The post-pandemic demand and supply backdrop has strong and stable underpinnings

As the US housing market transitions to its post-pandemic phase, it faces major headwinds including a historically rapid increase in mortgage rates. With negative headlines growing and memories of the Great Financial Crisis still fresh in investors’ minds, fears of a major home price correction have grown. In comparing this cycle to the last, Pretium believes that housing’s risk profile is dramatically different in 2022 than it was in 2006. The risk to home prices was underappreciated by many investors in 2006 because home prices hadn’t seen a significant national decline since the Great Depression; conversely, the current perceived risk to home prices may be overstated because home prices experienced a major correction just 10 years ago. Fundamentals matter, and the demand and supply backdrop for the post-pandemic period is solidly grounded especially relative to the mid-2000s housing boom. Looking ahead, the supply-demand imbalance that propelled housing during the pandemic is stil likely to remain an important dynamic in the post-pandemic housing market. While home prices may not emerge unscathed from adverse economic scenarios, Pretium expects downside risk to be limited compared to the last cycle. Overall, housing’s unresolved supply-demand imbalance underpins a favorable risk-reward profile for residential housing investment, particularly for single-family rental homes.

The strong demand backdrop for housing is most clearly illustrated by the increase in rents alongside home prices the past few years, as shown in Exhibit 1. Both single-family and multifamily rents grew at a double-digit pace and are up more than 20% in the two years ending June 2022.1 This compares to the roughly 7% increase that rents experienced during 2004-05 period. Easing mortgage lending standards amplified housing demand mostly in the purchase market during the mid-2000s whereas mortgage lending standards tightened during the pandemic. Rental markets don’t experience speculative excess as the home purchase market does, so the meaningful increase in rents during the pandemic argues that housing demand is well-grounded fundamentally. Pretium believes that the pandemic structurally increased housing demand as reflected in trends such as work-from-home, increased migration and greater consumer prioritization of space & wellbeing. Exhibit 2 illustrates the strong relationship between home prices and months supply of resale inventories. The historically low levels of resale inventories during the pandemic (more than two-thirds below pre-pandemic levels) anchored home price growth. For sustained home price pressure to emerge in the post-pandemic period, inventory levels would have to increase substantially from current levels as they did in 2006-07. This seems unlikely given low levels of mortgage distress, a reluctance by existing homeowners to give up their low fixed rate mortgages, aging-in-place and long-term underbuilding since the last cycle. These factors appear to have already begun to limit inventory growth even as the housing market transitions – in recent weeks, the volume of new resale listings has fallen 15-20% below pandemic levels and overall resale inventory levels have begun to flatten. 2

Exhibit 1


New and Existing Home Inventory Month's Supply

Source: CoreLogic Single-Family Rent, S&P Case-Shiller and Home Price Indices, all as of September 2022; RealPage Axiometrics Quarterly Market Performance Trend, as of September 2022; National Association of Realtors Existing-Home Sales retrieved via Bloomberg, as of September 2022.

This is not an offer, advertisement, or solicitation for interests in any Pretium managed vehicle and should not be construed or relied upon as investment advice or as predictive of future market or investment performance. Past performance is not indicative of future results.

1. CoreLogic Single-Family Rent Index, RealPage Axiometrics Quarterly Market Performance Trend, both as of September 2022.
2. Redfin Weekly Housing Market Data, as of September 4, 2022.

Related Content

2021 Single-Family Rental Factsheet

2021 U.S. Housing Outlook

Pretium’s Housing Insights, August 2022


Pretium’s Housing Insights, August 2022

August 15, 2022


Housing’s slowdown is likely to be felt more acutely in the new home market vs. the resale market

Pandemic supply chain issues increase inventory risk in the new home market

The increase in mortgage rates by more than 200 bps during 2022 has begun to achieve the Federal Reserve’s desired goal of slowing home purchase demand. In recent weeks, pending sales of existing homes have fallen back to 2019 levels and sales volumes in the new home market as of June have fallen to pre-pandemic levels.1 While home price momentum has also slowed across both markets, it has been felt more acutely in the new home market than in the resale market. While data from mortgage rate locks indicates a still-above average pace of resale home price gains, builder surveys show there are already more builders cutting prices than raising them.2 While it is normal for the new home market to adjust more quickly than the resale market during periods of changing demand, Pretium believes the paths of the new home and resale markets could diverge to a greater extent this cycle due to differences in inventory risk.

At the start of the pandemic, factors such as cumulative underbuilding, aging-in-place3, and lengthening homeowner tenures contributed to historically low existing home listings, as shown in Exhibit 1. The pandemic housing demand surge further depleted existing home supply until it began to recover this year due to slowing demand. New home inventory sat at normal levels by historical standards in the beginning of 2020 before declining in the early months of the pandemic as demand grew. However, supply chain constraints limited builders’ ability to respond to this increasing demand. As construction cycles lengthened and labor/materials became more difficult to source, builder inventories of incomplete homes rose rapidly. The unusual divergence this cycle between inventory levels of existing homes and new home markets is best illustrated by looking at months’ supply, as shown in Exhibit 2, which highlights how the inventory paths of the resale and new home markets began to separate in 2015, and how the pandemic widened the gap meaningfully.

This divergence suggests that the risk to resale home prices should remain less than the risk to new home pricing. Pretium does not expect overall resale home price declines, even in a moderate recession scenario. In the new home market, completions are likely to increase over the next 6-12 months with increasing pressure on builders to sell into a slowing market. As a result, Pretium expects compelling opportunities to acquire in the build-to-rent sector.

Exhibit 1

New and Existing Home Inventories


New and Existing Home Inventory Month's Supply Source: National Association of Realtors, Existing Home Sales as of July 20th, 2022; US Census, New Residential Sales as of June 2022.

These materials do not constitute, or form part of, any offer to sell or issue interests in an investment vehicle or any other entity managed by Pretium Partners, LLC or its affiliates (collectively, “Pretium”). Any such offer or solicitation will be made solely by means of a definitive offering document, which will describe the actual terms of any securities offered and will contain material information regarding the securities. Certain information contained in this presentation has been obtained from published and non-published sources prepared by third parties, which, in certain cases, have not been updated through the date hereof. While such information is believed to be reliable, Pretium has not independently verified such information nor does it assume any responsibility for the accuracy or completeness of such information. Except as otherwise indicated herein, the information, opinions and estimates provided in this presentation are based on matters and information as they exist as of the date these materials have been prepared and not as of any future date, and will not be updated or otherwise revised to reflect information that is subsequently discovered or available, or for changes in circumstances occurring after the date hereof.

1. Redfin, Weekly Housing Data as of July 24th, 2022, US Census, New Residential Sales as of June 2022.
2. AEI Housing Center, Housing Finance Watch as of August 9th, 2022, John Burns Consulting, Home Builder Survey as of August 4th, 2022.
3. Pretium’s Housing Insights as of April 2022

Related Content

2021 Single-Family Rental Factsheet

2021 U.S. Housing Outlook

State of ESG


State of ESG

June 2022

Environmental, Social, and Governance (ESG) principles and practices have positive impact on our investments and stakeholders, from our investors to our employees, residents and the communities in which we operate. As we enter our second decade, we are focused on institutionalizing our founding ESG principles throughout our platform.

ESG Policy


ESG Policy

June 13, 2022

The Firm believes systematic integration of ESG considerations into investment and ownership is the next step and that this will help the Firm’s decision-making and ultimately enhance value for our investors. We believe developing ESG systems around our investments and adjacent strategies will be key to navigating existing and future risks and opportunities. We are excited about this future.

The following ESG principles will guide our approach to new investments and existing ownership across our investment strategies, ownership, and operations:

  • Regularly engaging stakeholders on ESG.
  • Defining stakeholders as investors, employees, regulators, consumers, and communities in which we operate.
  • Tasking our leaders to drive assessment of material ESG factors across our strategies.
  • Systematically incorporating ESG considerations and solutions in our investments, ownership, and business operations from top to bottom.
  • Avoiding strategies that cause significant harm environmentally and/or socially.
  • Developing methods to disclose, benchmark, review and improve on our ESG strategies year over year.
  • Embracing a leadership role in ESG within our relevant industries.

Our goal is to lead our investment strategies and operating companies into the next decades within this framework and with thoughtful leadership focused on promoting corporate responsibility and enhancing value for our investors. To that end, we will undertake the following ESG Commitments:

  • Maintaining ESG within Executive Committee agenda.
  • Integrating ESG into investment decisions through assessment of material factors from sourcing to due diligence, to investment committee reviews.
  • Integrating ESG into existing portfolio ownership and operations by identifying opportunities to mitigate the effects of our investments on the environment and to promote a consumer and community centric vision.

Based on these ESG Principles and Commitments, the Firm is prepared to sign on to United Nations Principles for Responsible Investing in 2023 when the new guidelines are issued.

DEI Statement


DEI Statement

June 13, 2022

Pretium strives to have a diverse workforce reflective of the communities in which we operate. We believe this driving principle will make us a better Firm, one more able to deliver value to our investors. We are committed to embracing and developing Diversity, Equity, and Inclusion (“DEI”) best practices across our platforms by:

  • Developing recruitment, retention, and promotion practices that focus on expanding our workforce to reflect the communities in which we operate.
  • Developing workforce policies that reflect awareness, inclusivity, respect, equitable opportunity, and a fulfilling work environment for employees of any race, ethnicity, religion, LGBTQ+, familial, and/or disability status.
  • Developing and promoting a network of diverse partners, consultants, suppliers, vendors, and third-party professionals.
  • Benchmarking, disclosing, reviewing, and improving on our DEI strategies year over year.
  • Educating ourselves regularly and engaging around unconscious bias, racial justice, and any other material DEI topics that impact our communities, our business, and/or our stakeholders.
  • Embracing a leadership role in DEI within our relevant industries.

Crescent Communities and Pretium Announce New HARMON Build-to-Rent Community in Growing Gulf Coast Market


Crescent Communities and Pretium Announce New HARMON Build-to-Rent Community in Growing Gulf Coast Market

March 28, 2022

HARMON Legacy Trail in Metro Sarasota, FL Offers New Approach to Single-Family Living

CHARLOTTE, N.C. and NEW YORK, March 28, 2022 /PRNewswire/Crescent Communities and Pretium today announced the closing of land for the development of HARMON Legacy Trail, the third build-to-rent (BTR) community under development as part of their previously announced joint venture and commitment to invest $1 billion in new single-family build-to-rent communities across 14 key strategic growth markets. Construction for HARMON Legacy Trail is expected to commence in July 2022 with first units slated to be delivered in Fall of 2023.

“We are thrilled to announce our third development in partnership with Pretium and our first build-to-rent community in the Florida region,” said Tony Chen, Managing Director of Single-Family Build-to-Rent at Crescent Communities. “HARMON Legacy Trail will provide residents the opportunity to live in new construction homes within a growing and vibrant community adjacent to the Legacy Trail connecting downtown Sarasota and Venice. This community highlights our commitment to growing strategically in Florida and the Sun Belt, and we look forward to sharing more updates on further growth very soon.”

HARMON Legacy Trail will be a 78-home BTR community in Nokomis, Florida. The community will offer residents the option to rent three- (1,600+ sq ft) and four- (1,900+ sq ft) bedroom townhomes with outdoor patios and private garages. Residents will have access to select interactive amenity spaces, such as dedicated outdoor lounge seating, play areas, dog park, and walking trails. Select homes will also have views from private balconies of the onsite lake. The community is located in an excellent school district, is adjacent to the Legacy Trail, a 20+ mile path connecting downtown Sarasota to downtown Venice, and is near Nokomis Beach and Oscar Sherer Park.

“We are proud to partner with the Crescent Communities team to unveil our third BTR community in one of the most desirable housing markets in the country,” said Matt Johnston, Managing Director and Head of Build-to-Rent at Pretium. “Our partnership is an example of how private capital can quickly and efficiently be invested to build high-quality housing for our communities. HARMON Legacy Trail represents an incredible opportunity to provide something we know our residents want – new, modern, and healthy homes. We are looking forward to the beginning of construction over the summer and building on our partnership with the Crescent Communities team.”

“HARMON Legacy Trail will be part of a larger master-planned community with additional residential offerings, including the forthcoming RENDER Legacy Trail, and more than six acres of future retail space,” said Tim Graff, Managing Director of Florida for Crescent Communities’ multifamily business. “We are excited to bring our top-of-the-line build-to-rent product to this area and look forward to commencing work.”

HARMON Legacy Trail will be located at Aqua Bella Drive, Nokomis, FL and will be built by Southern Impression Homes. Additional partners include civil engineer Kimley-Horn, landscape architect LandDesign, and architectural review by 505Design.

Additional details surrounding HARMON Legacy Trail will be announced at a later date. A rendering is available here. Forthcoming imagery and logos are available upon request.

About Crescent Communities
Crescent Communities is a nationally recognized, market-leading real estate investor, developer and operator of mixed-use communities. We create high-quality, differentiated residential and commercial communities in many of the fastest growing markets in the United States. Since 1963, our development portfolio has included more than 74 multifamily communities, 24 million square feet of commercial space and 60 single family master-planned communities. Crescent Communities has offices in Charlotte, DC, Atlanta, Orlando, Nashville, Dallas, Denver, Phoenix and Salt Lake City. Our residential communities are branded NOVEL, RENDER and HARMON by Crescent Communities and our industrial developments are branded AXIAL by Crescent Communities.

About Pretium
Pretium is a specialized investment firm focused on U.S. residential real estate, residential credit, and corporate credit. Pretium was founded in 2012 to capitalize on secular investment and lending opportunities arising as a result of structural changes, disruptions, and inefficiencies within the economy. Pretium has built an integrated analytical and operational ecosystem within the U.S. housing, residential credit, and corporate credit markets, and believes that its insight and experience within these markets create a strategic advantage over other investment managers. Pretium’s platform has approximately $40 billion of assets under management as of February 1, 2022 and employs more than 3,000 people across 30 offices, including London and Dubai. Please visit for additional information.

Crescent Communities Media Contact
Lauren Ferguson

Pretium Media Contacts
Jon Keehner / Lyle Weston / Erik Carlson
Joele Frank, Wilkinson Brimmer Katcher

Esusu and Progress Residential Join Forces to Transform Single-Family Rental Housing


Esusu and Progress Residential Join Forces to Transform Single-Family Rental Housing

March 2022

HARLEM, N.Y. and SCOTTSDALE, Ariz., March 21, 2022 /PRNewswire/ — Esusu, the leading financial technology company advancing rent reporting and data solutions for credit building, and Progress Residential, the market leader in single-family rental management services, today announced a new partnership to make Esusu’s platform for financial health solutions available to Progress Residential’s more than 250,000 residents across approximately 80,000 homes nationwide.

Environmental Report


Environmental Report

March 2022

Executive Summary

Pretium and Progress Residential are committed to conducting business ethically and making investment decisions in a manner that is fiscally, socially, and environmentally responsible. The goal of both organizations is to provide residents with renovated, well-maintained, and affordable rental homes by making significant investments in residents, homes, and communities within the Pretium SFR Portfolio. This Environmental Report provides a high-level overview of Pretium’s and Progress Residential’s “Social” and “Governance” strategies but mainly focuses on our “Environmental” impacts. Additional details on Pretium Social and Governance strategies will be included as part of our upcoming State of ESG publication.

CLOs: Success Drives Growth


CLOs: Success Drives Growth

February 16, 2022

Executive Summary

The strong growth of the CLO market over the past decade owed its success to numerous factors — the durability of term leverage structures, the up-in-quality bias of CLO loan portfolios, the demand for high-rated fixed income securities, and the growth of private credit markets have all played major roles. And perhaps most importantly, during a period where yields on public fixed income securities have fallen to unviable levels for many investors, CLO equity has continued to generate high annual cash flow (Exhibit 1).

2021 U.S. Housing Shortage


The U.S. Housing Shortage

October 26, 2021


The COVID-19 pandemic laid bare the severity of the U.S. housing shortage – surging demand met limited supply, driving home prices, as well as multi-family and single-family rents, to record increases. The pressure on suburban housing supply is only likely to grow as Millennials start families and Baby Boomers increasingly choose to age-in-place.

The pandemic’s boost to housing demand has been immediate, but the supply response will take years. Studies estimate that the U.S. has a shortage of 4-5 million housing units, on top of which the U.S. will add another 10+ million households over the next decade. Builders have historically responded to increased housing demand with new construction, but an accumulation of supply constraints – particularly for land – have made this difficult and costly, particularly for single-family homes.

Housing underinvestment also extends to the quality of the housing stock. The median age of U.S. homes is roughly 40 years, suggesting an increasing need for age-related repairs along with improvements to reflect the changing lifestyle preferences of modern households. Such renovations are frequently neglected – for many households they are difficult to finance, as more than 40% of homeowners spend nothing on home improvement.

With these themes as backdrop, we see growth areas in need of substantial investment:

Single-family rentals and build-to-rent. As the shortage of single-family homes and rising home prices both help to put ownership further out of reach, suburban demand will increasingly shift to single-family rentals. However, this demand has fewer places to go. Construction activity, too, has been running below trend for single-family homes whereas multi-family starts have been running near multi-decade highs. The robust demand for homeownership has been taking such rentals off the market, decreasing the single-family rental stock by nearly 700,000 units in the years leading up to the pandemic.

Leading to “fix and flip” investors. The average homeowner tenure is up to nearly 14 years from just 6 years in 2005. An aging, more static housing stock requires repair and remodeling, with over one-third of occupied housing units consequently requiring repair. Additionally, households increasingly desire home improvement to reflect shifts like aging-in-place and working-from-home. Despite this, remodeling remains a largely luxury good undertaken primarily by higher-income households. As with homeownership, the access to financing is a major hurdle in addressing this growing investment deficit.

Affordable housing. Affordable housing is in particularly short supply. Cumulative underinvestment in US housing has created the most acute supply-demand imbalance in affordable housing. Prior to the pandemic, nearly one-third of US households were financially burdened by housing costs and this proportion has likely risen because of the pandemic. As a result of supply constraints, new housing construction no longer serves affordable housing needs –  therefore, the burden of meeting affordable housing needs largely falls on existing housing stock. 

The Pandemic Exacerbated the Limited Availability and Supply of Homes

The U.S. Housing Supply Shortage is Estimated to be Roughly 4-5 Million Units

The record setting double-digit pace of home price appreciation and record setting rent growth during the COVID-19 pandemic suggest that housing demand has outpaced supply by a significant margin. Most home price indices show national YoY gains of 15-20%, which exceed gains seen during the mid-2000s housing boom. Single-family and multifamily rents have also shown record double-digit gains during the pandemic that have no comparable period in the historical data.1

Although supply-demand imbalance is difficult to measure in housing, there is broad consensus that a supply shortage exists and that it measures in the millions. Analysis from Freddie Mac accounts for both unexpressed household formation as well as shortfalls in vacant housing stock and concludes that the supply-demand imbalance in housing entering the pandemic was roughly 3.8 million.2 This estimate includes only 0.4 million in unexpressed household formation – an estimate that could prove conservative given the likely durable positive effect of the pandemic on household formation. Assuming that the pandemic has increased unexpressed household formation by roughly 0.5% of total households or 0.6 mm, housing’s supply shortage is roughly 4-5 million as shown in Exhibit 1.

Exhibit 1: Estimated US Housing Supply Shortage

Estimated US housing supply shortage pie chart

Source: Freddie Mac, “Housing Supply: A Growing Deficit,” May 7, 2021; Pretium.

1 CoreLogic, Single-Family Rent Index (SFRI), July 2021; RealPage Axiometrics Summary Report – National Summary, 3Q21.

2 Freddie Mac, “Housing Supply: A Growing Deficit,” May 7, 2021.

Housing Construction Faces Both Medium-Term and Long-Term Supply Constraints

Housing starts increased during 2020 in response to an increase in demand; however, this pace of construction has proven hard to maintain despite strong demand – single-family starts have been on a downward trajectory through 2021. Construction activity may pick up again in 2022 but the challenges that builders face are both medium-term (materials, labor) and long-term (land, regulations) in nature.

Materials and labor shortages are preventing builders from responding to increased demand

Labor shortages for residential construction have worsened over the past two decades. When housing starts averaged ~1.5 mm during the housing boom of the mid-2000s, 42% of builders on average reported labor shortages during this period (Exhibit 2). In the four years leading up to the pandemic, housing starts averaged only ~850,000 yet nearly two-thirds of builders reported labors shortages; moreover, this percentage was growing over time.

Exhibit 2: Labor Shortages vs. Construction Levels, 2002-05 vs. 2016-19

Labor shortages vs construction levels table

Source: National Association of Homebuilders, Housing Market Index, 2Q21 Update

Building products supply shortages that have emerged during the pandemic have compounded labor shortages leading to extended construction cycle times, increased costs and uncertainty about builders’ profit margins. Goods used as inputs in residential construction are up 19.0% YTD as of July 2021 – a record level.3 Including labor, total construction costs are up 22% YoY and nearly all builders have seen cycle times extend as 2021 has progressed.4 Due to extended cycle times and rapid cost increases, many builders have intentionally reduced sales through the pandemic by instituting sales caps and mainly selling homes that are partially or fully complete.

3 National Association of Homebuilders, “Building Materials Prices: Large Increases Year-to-Date,” September 9, 2021.

4 John Burns Real Estate Consulting, “Home Builder Survey,” September 7, 2021.

Limited land supply and local regulation restricts new supply longer-term

To the extent that homebuilders face difficulties in securing land for residential development or see increased costs and project delays due to local regulations, it can have a negative impact on the supply of new single-family homes. The effect of land-driven supply constraints and other regulatory costs on home prices and affordability has long been recognized.5 Land price trends reflect accumulated supply constraints – in the years leading up to the pandemic, they rose at more than twice the pace of home prices, as shown in Exhibit 3. From 2012 to 2019 US home prices rose 48% while land prices rose 102%.

Exhibit 3: US Home Prices vs. Land Values (2012-19)

Source: AEI Housing Center, “AEI-adjusted Land Price and Land Share Indicators,” updated May 2021.

Land prices reflect an accumulation of supply and use restrictions because land values are a residual of home prices. Supply and use restrictions take a variety of forms, as described below:

Limited Land Supply: Very few local jurisdictions have explicit numerical restrictions on land use for housing; instead, supply is effectively limited through regulations such as zoning, density restrictions, and lengthy approvals. Such regulations have increased over time across metro areas.6 Geography also plays a role in restricting land supply in some markets, especially coastal ones.7

Regulatory Costs: Local land and building regulations can drive incremental costs for homebuilders directly and indirectly, which decreases overall housing supply at a given price point. The NAHB estimates that nearly a quarter of the cost of a new home is driven by regulatory costs, with nearly half accounted for by land use regulations and the remainder accounted for by building regulations.8 Furthermore, these costs have increased by 44% over the past decade.

Local Land Use Restrictions Increase Over Time: The preponderance of evidence suggests that land and building regulations have generally gone up over time. This was also the case after the Great Financial Crisis, despite the difficult operating conditions for homebuilders.

5 Glaeser & Gyourko, “The Impact of Zoning on Housing Affordability,” NBER Working Paper, March, 2002.

6 Gyourko, Hartley & Krimmel, “The Local Residential Land Use Regulatory Environment Across US Housing Markets,” NBER Working Paper, December 2019.

7 Albert Saiz, “The Geographic Determinants of Housing Supply,” Quarterly Journal of Economics, August 2010.

8 Paul Emrath, “Government Regulation in the Price of a New Home: 2021,” Special Study for Housing Economics, May 5, 2021.

Longer Tenures and Lower Listings Make It Harder to Access Homeownership

The COVID-19 pandemic drove the supply of resale listings to all-time lows; moreover, as shown in Exhibit 4 this continued a longer-term trend of lower resale listings supply for potential homebuyers to choose from. Limited listings supply makes it difficult to match existing inventory to homebuyers’ preferences. Decreasing supply is partially a function of improving technology that makes it easier to search for and bid on homes; however, it is also driven by decreased housing turnover due to lengthening homeowner tenures. In 2020 25.1% of homeowners have been in their homes for more than 20 years, up from 8.6% in 2005 as shown in Exhibit 5. The average homeowner tenure is now roughly 13.8 years, up from 8.7 years in 2010 and 6.4 years in 2005.

Exhibit 4: Months of Supply of Resale Listings

Months supply of resale listings line graph Source: National Association of Realtors, retrieved through Haver Analytics.

Exhibit 5: Homeowners Staying 20+ Years

Homeowners Staying 20+ Years line graph

Source: Redfin, Homeowner Tenure 2020, January 2021 (, retrieved via Wall Street Journal.

Financial Hurdles to Homeownership Remain High

Purchasing a home is the largest financial transaction most households undertake, requiring substantial savings, the ability to qualify for a loan, and sufficient income to meet ongoing mortgage, tax, maintenance and other costs. Mortgage markets generally dictate the financial barriers to entry for homeownership; however, changes in households’ financial circumstances also affect that ability of households to become homeowners. After the Great Financial Crisis, financial hurdles to homeownership have increased and we expect them to remain elevated.

Down Payments: Most surveys of potential homebuyers find that lack of a down payment is the most significant barrier to homeownership. Over 50% of potential homebuyers say that they don’t have sufficient savings for a down payment.9

Mortgage Access for Low Credit Scores Still Limited: Some mortgage credit metrics such as down payment levels and debt-to-income ratios have normalized since the Great Financial Crisis; however, mortgage access for consumers with low credit scores remains restricted. As shown in Exhibit 6, median credit scores for mortgages have been consistently higher since the Great Financial Crisis with the pandemic driving median credit scores to new highs. Originations to consumers with credit scores below 660 were as much as a quarter of the market prior to the Great Financial Crisis; now, they are less than 5% as shown in Exhibit 7.

Exhibit 6: Median Credit Scores on Mortgage Originations

Median credit scores on mortgage originations line graph

Exhibit 7: Mortgage Originations by Credit Score

Mortgage originations by credit score stacked area graph

Source: New York Fed Consumer Credit Panel/Equifax, data through 2Q21.

Declining Affordability: The pandemic driven surge in home prices has outpaced the affordability boost from lower rates and driven housing affordability to a cycle low. The NAHB Housing Opportunity Index (Exhibit 8) measures the percent of homes sold that would have been affordable to a household earning the area median income. Only 56.6% of homes sold in 2Q21 meet this criterion, down from a range of 60-65% prior to the pandemic.

Exhibit 8: Percent of Homes Affordable at Area Median Income

Percent of homes affordable at median income line graph

Source: National Association of Homebuilders, Housing Opportunity Index, 2Q21 Update.

9 LendingTree, Homeownership/Renting Survey, August 31, 2021.

Where Housing Needs Investment Most

1) There Aren’t Enough Single-Family Homes, Especially Rentals

Following the Great Financial Crisis, single-family housing starts fell below their long-term average of 1.0 million in mid-2007 and stayed there for 13 years.10 It was only after the pandemic driven housing demand surge that single-family construction levels exceeded their long-term average as shown in Exhibit 9. The sustained period of low levels of single-family construction has created an undersupply situation that would take many years to resolve even if production levels increased substantially.

Multifamily housing’s construction path has been materially different than single-family’s as shown in Exhibit 10. In mid-2008, multifamily starts fell below their long-term average but stayed there for less than 6 years. Multifamily starts have been above their long-term average for most of the last 8 years and are nearer to their historical highs than to their long-term average.

Exhibit 9: Single-Family Housing Starts (1990-Current)

Single-family housing starts 1990-current line graph

Exhibit 10: Multifamily Housing Starts (1990-Current)

Multi-family housing starts 1990-current line graph

Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Residential Construction, New Privately-Owned Housing Units Started, retrieved via Haver, through July 2021.

10 U.S. Census, New Residential Construction, through July 2021.

Single-Family Rental Stock Has Decreased in Recent Years

The total number of renter households has been stable since 2016, including through the pandemic as shown in Exhibit 11. Nearly all household growth has occurred in owner households. At the same time, the rental market has shifted away from single-family rentals towards multi-family rentals as shown in Exhibit 12. Single-family rentals were 35.0% of the rental market in 2014 but were less than 33% immediately prior to the pandemic. In absolute terms, the single-family rental stock has shrunk by nearly 700,000 units over the past 4-5 years.

Exhibit 11: Owner vs. Renter Households (1Q10-2Q21)

Owner vs renter households line graph

Exhibit 12: Rental Market Composition (2006-2019)

rental market composition line graph

Source: U.S. Census Bureau, 2019 American Community Survey 1-Year Estimates, Housing Vacancy Survey; Pretium. Housing Vacancy Survey data adjusted 2Q20-1Q21 due to pandemic related data collection issues. 

2) An Aging, More Static Housing Stock Requires Repair and Remodeling

The difficulty of building new homes and the aging of the housing stock has increased the relative importance of maintaining and adapting the existing housing stock to the needs of the population. This is reflected in the increased proportion of residential construction spending that now goes to remodeling as shown in Exhibit 13. Prior to the Great Financial Crisis, roughly 24% of residential construction spending was accounted for by remodeling; afterwards it has increased to 35% of residential construction spending.

Exhibit 13: Percent of Residential Construction Spending That is Remodeling

percent of residential construction spending that is remodeling line graph

Source: US Census, Construction Put-in-Place.

Increased household tenures have been found to drive increased remodeling as households adapt their existing homes to their changing needs as opposed to moving. For example, work-from-home has driven the need for separation of spaces; also, households that choose to age-in-place typically make aging-related modifications.

The lifespan of most building products is between 10-25 years,11 so as homes age the need for repairs accumulates. Since housing supply growth has slowed over the decades relative to the size of the existing housing stock, the overall housing stock is aging steadily. As shown in Exhibit 14, the median age of owner-occupied housing increased to 39 years in 2019 from 31 years in 2005. The percentage of homes that need repairs and the cost of those repairs increases with a home’s age, as shown in Exhibit 15. Roughly 26% of homes built after 2000 require repairs whereas 45% of those built before 1939 require repairs. 

Exhibit 14: Median Age of Owner-Occupied Housing

Median age of owner occupied housing line graph

Exhibit 15: Repair Costs Needed by Age of House

Repair costs needed by age of house stacked bar graphs

Source: U.S. Census Bureau, 2015-19 American Community Survey 1-Year Estimates, retrieved via NAHB. Federal Reserve Bank of Philadelphia and PolicyMap, using American Housing Survey and RSMeans.  

Financing home improvement is difficult, so it often doesn’t happen

Since financing for home improvements isn’t generally available, it is mostly funded from discretionary spending.12 This financing constraint results in cumulative underinvestment in the existing housing stock as shown in Exhibit 15 above. In 2019, 43% of homeowners spent nothing on home improvement/maintenance and another 12% spent less than $500.13 The financing constraints on remodeling spending are evident in the distribution of spending across income brackets. As shown in Exhibit 16, households earning over $120,000 account for only 1 in 5 households but 1 in 2 dollars spent on remodeling. Households earning less than $40,000 are more than one-third of overall households but account for just 13% of remodeling spending.

Exhibit 16: Percent of Remodeling Spending by Income Bracket

Percent of remodeling spending by income bracket bar graph

Source: US Census, American Housing Survey 2019 Estimates.

11 InterNACHI Standard Estimated Life Expectancy Chart for Homes.

12 US Census, American Housing Survey 2019 Estimates.

13 US Census, American Housing Survey 2019 estimates, retrieved via Harvard Joint Center for Housing Studies. 

3) Affordable Housing is in Particularly Short Supply

Long-term underbuilding, widening income inequality and increases in home prices and rents have reduced the affordability of housing overall, but especially for lower income households. Prior to the pandemic, 30% of households faced housing cost burdens that consumed more than 30% of their household income, with 16% paying 30-50% of their incomes for housing (moderately burdened) and 14% paying more than 50% (severely burdened). As shown in Exhibit 17, excessive housing cost burdens affect lower income households at a much greater rate than higher income households.

Exhibit 17: Proportion of Households Burdened by Housing Costs by Income Bracket, 2019

Proportion of households burdened by housing costs by income bracket bar graph

Source: US Census, American Community Survey 2019 via Harvard JCHS.

By some estimates, the US housing supply shortage is entirely concentrated in affordable housing. The National Low Income Housing Council estimates that extremely low-income renter households face a shortage of nearly 7 million available and affordable rental units.14 Expressed differently, there are only 37 available and affordable rental units for every 100 extremely low-income renter households.

The COVID-19 pandemic is likely to have worsened the supply shortage of affordable homes given both increases in home prices/rents as well as the disproportionate economic impact of the pandemic on lower income households. As shown in Exhibit 18, low-income households are more likely to have reported income loss because of the pandemic compared to higher-income households.

Exhibit 18: Proportion of Households Reporting Lost Income by Income Bracket, 1Q21

Proportion of households reporting lost income by income bracket bar graph

Source: US Census, Household Pulse Survey via Harvard JCHS.

14 National Low Income Housing Coalition, “The Gap: A Shortage of Affordable Homes,” March 2021.

New home construction has moved away from providing affordable housing

The accumulation of land use restrictions for single-family housing over the decades has made it less economically feasible for homebuilders to build small homes on increasingly expensive land. This is reflected in the shrinking percentage of new homes built that are smaller and therefore more affordable. As shown in Exhibit 19, the percentage of new homes sold that are under 1,400 sq. ft. has shrunk to roughly 3% in recent years from as high as 14% in 1999. In the 1970s and early 1980s, half of homes sold were under 1,600 sq. ft.

Exhibit 19: New Single-Family Homes Sold That Are Smaller & Affordable (1973-2020)

New single-family homes sold that are smaller and affordable line graph

Source: US Census, Survey of Construction.

Confidentiality and Other Important Disclosures

This presentation is for informational purposes only and solely intended for Pretium Partners, LLC and its affiliates (“Pretium”) to illustrate its breadth of experience in the Single-Family Rental market. This is not an offer, advertisement or solicitation for interests in any fund and is not published to demonstrate Pretium’s expertise in managing any fund or investor mandate. This report discusses general market activity, industry or sector trends, or other broad-based economic, market, or political conditions and should not be construed or relied upon as research or investment advice, as predictive of future market, or investment performance. This report reflects the views of Pretium as of the date on the cover and these views are subject to change without notice as the market conditions change and evolve, which can occur quickly. Past performance is not indicative of future results.

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