Operator: The next question comes from Jade Rahmani with KBW.
Jason Sabshon: This is actually Jason Sabshon on for Jade. So at current cap rates, what do you think the IRR is on single-family rental acquisitions over a 5- to 7-year hold? And do you view that as attractive? And separately, what’s your outlook for home prices over the next year?
Dallas Tanner: I think as you look at going-in cap rates, reasonable assumptions around home price appreciation, in our markets, it feels like on an unlevered basis, you could certainly be in the high single digits, low double digits based on sort of the returns that we’re seeing out there. I think that, obviously, that equation sort of depends on your inputs around leverage over time.
Operator: The next question comes from Haendel St. Juste with Mizuho.
Haendel St. Juste: Dallas, you mentioned earlier the portfolio still has, I guess, more of an opportunity to generate accretion from asset recycling, selling older assets to buy new ones. Could you maybe put some broad brackets around that opportunity? Do you see that as perhaps 10%, 20%, 30% of the portfolio? And how much large of a role should we expect for disposition to play in funding your business near term?
Dallas Tanner: Haendel, good question. One of the things, and Jon mentioned it, is we have sort of a high-class problem right now. And it’s that we have assets that have really good valuations to them, a market that is starved for product if you’re selling a home. But we also have a business that’s got really amazing growth fundamentals behind it. And so anytime homes come up for a renewal where we reprice, we call it, a rebuy analysis and we look at the portfolio as a whole, and there’s a lot of different reasons for holding an asset, and there’s a lot — there can be several different factors to why you may consider selling an asset. I think in today’s environment, with equity being so precious, I think if there are opportunities to recycle capital, expect us to be probably a little bit more aggressive there.
And we’ve certainly shown that the last couple of years. I think the company itself generally has gotten really good high marks for being good capital allocators. We’ve sold probably 13,000, 14,000 homes back into the market over the last decade. And we look at the U.S. single-family housing market as the most liquid asset class in the world. And there — our homes are generally located in areas where if we want to sell that home, there are a lot of buyers as well as there normally would be a lot of renters for that home. And so that’s a high-class problem. I think we’ll evaluate our capital opportunities over time. If we think that, that makes sense to keep recycling because of sort of the spreads between where values are and where we can reinvest accretively, expect us, as I mentioned before, to be a little bit more aggressive there.
But in terms of issuing like a guidance on that, we’ll update our thinking in February again. We did that at the beginning of this year. We’ve been a little bit more of a seller relative to what we laid out at the beginning of the year. And that’s been based on the market opportunity.
Operator: The next question comes from Anthony Powell with Barclays.
Anthony Powell: Could you update us on your views on the risk of shadow supply and mortgage rate lock-in? I think this comes up from time-to-time, question to us. With mortgage rate at 8%, people may want to hold on to their current mortgage for longer. Do you expect to see more supply from, I guess, accidental landlords going forward? And is that something that you underwrite when you buy properties or when you look for developments?
Dallas Tanner: My own view is that, just based on conversations we’re having with both economists and homebuilders, it certainly feels like mortgage rate sensitivity has been more of a factor for people. Builders have had, obviously, tremendous success in buying down mortgage rate. And they’ve been able to do that for the better part of the last year, 1.5 years. As these rates get more and more elevated based on where the 10-year and sort of treasuries are, I would expect that, that probably increases people’s willingness to stay locked in, in a home that they currently own. I was looking at this the other day, and I think it’s still somewhere around 80% of the country is still at a sub-5% mortgage rate. And we talk about this in our earnings release.
It’s about $13,000 a year cheaper to rent a home right now, an Invitation home, than it is to go out and buy. And I don’t see that changing in the near term. If anything, I think, with this higher-for-longer period that people keep referring to, it sort of seems like the new reality right now. And I think it’s probably a really good thing for those in our business in terms of the inherent demand that Charles talked about. And I think we’re probably seeing some of that in the elevated renewal rates that are still sticking around through Q3 and likely into Q4.
Operator: Our final question comes from James Feldman with Wells Fargo.
James Feldman: I just wanted to go back to your comments on JV opportunities and fee opportunities. So if you were to expand the JV platform meaningfully, would you think about entering new markets, maybe new home types? Or do you think you kind of stick with the exact same strategy you have and types of markets you have? And then similarly, if you think about the — if you do more kind of fee management, is that purely just a fee collection business? Or do you take equity stakes in those types of portfolios as well?
Dallas Tanner: To your question on markets — this is Dallas. To your question on markets, we love the markets we’re in. I think one of the reasons that we’ve had the sort of performance that we’ve had historically, and we’ve been one of the top 5 — we’ve had probably the best numbers in the residential space the last 5 years running, is in large part because we’ve been very deliberate about where we invest capital and why. And if you look at our concentrations, we’ve been in some of the highest-growth parts of the country, and I wouldn’t expect us to change that philosophy. In addition, I think one of the reasons we get the operating margins that we do, and right now we’re in the high 60s and we have markets that are well into the 70s, is because of our focus on scale, density and being able to lay out services that people are going to want for longer periods of time.
And so as we continue to focus on being in not just the right states but the right markets within those states and then building out scale and product density that allows you to meaningfully impact your service model, that is a winning proposition for Invitation Homes over the long term. And don’t expect us to change from that. Now to your question around product type, we’ve certainly experimented a little bit as we’ve done more and more infill with some townhome-type product and some product that was a little bit higher density. One of the purchases we made in Q3 was a community like that in Arizona. That was a little bit higher-density product, really good location, right off a meaningful transportation quarter in the west side of Phoenix.
