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Rising home prices and lagging rents may lead to lower profits in the single-family home rental market, according to a new ATTOM Data Solutions report.

The company released its Q1 2021 “Single-Family Rental Market” report Thursday, ranking the best and worst U.S. markets for buying single-family rental properties this year.

According to the report, the average annual gross rental yield—annual income of a property as a percentage of the property’s value or purchase price—- is expected to hover around 7.7% for 2021, dropping from 2020’s average of 8.4%.

The report analyzed single-family rental returns in 495 U.S. counties, each with a population of at least 100,000 and sufficient rental and home price data. Of those counties researched, 87% of them saw from a year ago.

“The single-family home rental business is less profitable this year compared to last year across most of the country, with yields on the average deals decreasing. That’s happening as home prices on properties that investors are paying for, in most areas, are rising considerably faster than rents, which is cutting into their profit margins,” said Todd Teta, chief product officer at ATTOM Data Solutions.

According to Teta, returns on single-family rentals will still remain strong with some pockets, expected to fare well this year.

Among the top 50 rental returns for counties analyzed in 2021, the majority are in the Midwest while the South and Northeast are also in the mix. Most of the lowest-performing counties reside in the West, particularly in California.

Counties with the highest potential annual gross rental yields for 2021:

– Schuylkill County, Pa., in the Pottsville metro area (26.1%)
– Bibb County, Ga., in the Macon metro area (18.1%)
– Baltimore City/County, Md. (16.2%)
– La Salle County, Ill. in the Ottawa metro area (14.1%)
– Chautauqua County, N.Y., in the Jamestown metro area (13.7%)

Counties with the lowest potential annual gross rental yields for 2021:

– Williamson County, Tenn., in the Nashville metro area (3.7%)
– Santa Clara County, Calif., in the San Jose metro area (3.8%)
– San Mateo County, Calif., in the San Francisco metro area (3.8%)
– San Francisco County, Calif. (3.9%)
– Maui County, Hawaii (3.9%)

The report identified 61 “SFR Growth” counties where average wages grew over the past year and the potential 2021 annual gross rental yields are 10% or higher.

The top performers include Milwaukee County, Wisconsin; Shelby County, Tennessee; Monroe County, New York; Jefferson County, Alabama; and Baltimore City/County, Maryland.

To read the entire report, click here.

Jordan Grice is RISMedia’s associate online editor. Email him your real estate news ideas to jgrice@rismedia.com.

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