Deactivated Rental Listings Continue to Drop: April 15, 2020 Market Update

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For the third straight week, the national average for active listings inched upward—this week rising 0.5%, from $1,983 to $1,993. As we observed in previous weeks (and as shown by the data below), the national average for active listings rose, likely due to lower-priced rentals finding tenants, while higher-priced units sit on the market.

Deactivated listings, which I’m using as a proxy for properties that find tenants, dropped for the second straight week. Note the scale of the graph above, and know that while it’s concerning to see drops the last two weeks, the market is certainly not in freefall.

The biggest movement in this week’s data is the average price of new listings, which dropped over 4%, from $1,820 to $1,743.

In last week’s market report, I noted that landlords were discounting their pricing, but the data suggested the discounting was not sufficient. This week’s data appears to show that landlords across the country are doing a better job pricing newly listed units according to the new market dynamics.

The chart above is from last week’s report. Recall that we predicted that landlords would have to reduce rents another $75 in order to properly attract renters. Well, it seems we were pretty close in our prediction, as the asking price for newly listed units dropped $77 from last week to this one—and is now much closer to the asking price for deactivated listings (our proxy for market rent).

Last week, there was a 4.2% difference between the average for new listings ($1,820) and deactivated listings ($1,745). This week, that gap has shrunk considerably, to just a 1.4% difference ($1,743 for new listings and $1,719 for deactivated listings).

One bright spot in this week’s data is that the number of deactivated listings surged over 30%, from 31,270 to 41,613. It’s encouraging to see the number of renters signing leases has rebounded in the past week.

While we don’t have data that explicitly says so, the rebound of deactivated listings does appear to support my hypothesis that landlords are pricing their units more appropriately and are therefore finding tenants for their vacant units.

If you’re a landlord having a hard time looking for tenants right now, make sure to download this week’s data here (the password is insights). Using this week’s average for deactivated listings for your area could help you identify a price that your tenants are willing to pay.

Because looking at the mean asking price on a national level can only tell us so much, I created pricing heatmaps that show how prices are distributed across our three listing types.

For those unfamiliar with this type of chart: It is very similar to a histogram, but I find these heatmaps easier to compare to one another. Basically, it shows what percentage of listings are in each “bin” (the numbers on the left vertical axis). Rows that are red in color represent a “hot” bin—basically just a bin with a large percentage of listings. For example, in the New Listing Heatmap, you can see that the bin between $1,000 and $1,500 is the “hottest” bin, with 28% of all listings falling between $1,000 and $1,500.

At first glance, these charts may look pretty similar. But look carefully at the differences between the different bins. If you look closely, you can decipher a clear picture of what rent tiers are being impacted the most by recent economic changes.

The above chart shows the difference between active listing inventory and deactivated listing inventory. A positive number on this chart means a disproportionate number of listings are being deactivated (these units are getting filled). A negative number means a disproportionate number of active listings (these units are sitting on the market).

Note: The horizontal (x-axis) shows the bin sizes. The number you see is the upper limit of the bin size. So, when you see $1,000, that represents units priced $500–$1,000.

The main takeaway I see from this chart is that the “middle market,” with units priced $2,000–$4,000, is getting hit the hardest by the recent economic climate. Specifically, units with asking prices $2,000–$2,500 are see the biggest proportional drop in filling vacancies.

On the flip side, there appears to be disproportionately high demand for units $500–$2,000, as demonstrated by the positive bars in the chart above. This means that normally we would expect about 17% of the units deactivated each week to be between $500 and $1,000. This week, around 21% of these units were deactivated.

Of course, these ranges are rather large (and are national in scale), but the trends are still very useful to understand. Hopefully these charts can help you formulate your strategy for how to work with your tenants over the coming months—and how to price units if they become vacant.

To get a detailed analysis of rent prices and inventories by state and for every city in the country, download this week’s spreadsheet here. The password is insights.

Eviction Policies

In the face of a public health crisis, there are no standard guidelines on how to handle evictions. In Missouri, for example, some counties have put eviction freezes in place, even though the governor has not provided a statewide directive. And in Maricopa County, AZ, 26 different courts are following 26 different administrative orders on how to handle evictions.

This will likely become a more pressing issue as more renters lose their jobs. Already, almost one-third of apartment renters had not paid any of their rent during the first week of April. In 2019, more than 80% had paid their rent by the first weeks of both March and April.

To check on the status of evictions and eviction policies in your area, go to the Princeton University Eviction Lab.

Residential Real Estate Sales

• National inventory dropped 15.7% year-over-year for the month, but weekly numbers indicate slower buyer activity could be related to COVID-19.
• Inventory dropped 17.1% year-over-year in the 50 largest U.S. metropolitan areas.
• New property listings dropped 34% for the week ending 3/28/20.
• Nationally, the median listing price rose 3.8% year-over-year, but for the week ending 3/28/20, that figure was 2.5%, the slowest growth since Realtor.com started tracking the statistic in 2013.
• Active listing prices fell 15.4%, slightly lower than 2019.
• Jump in Mortgage Forbearance Requests

A survey by the Mortgage Bankers Association (MBA) found that requests for mortgage forbearance exploded in the first half of March by 1,270%—and by another 1,896% in the second half of the month. Loans already in forbearance also grew from 0.25% to 2.66% in March, a 10.64% increase.

Ginnie Mae-backed mortgages grew the most—from 0.19% to 4.25%. As of 4/1, independent mortgage bank services had the greatest share of loans in forbearance—3.45%.

The MBA expects requests “to continue to skyrocket at an unsustainable pace in the coming weeks.”

Outlook for Commercial Real Estate Markets

At the same time that small businesses and restaurants may be about to disappear at alarming rates, more corporate chains have become unwilling or unable to pay their rent. Co-working company WeWork, Staples, Subway, and Mattress Firm are examples of high-profile national companies that have stopped paying rent at some or all of their locations.

Besides the future health of the economy, the greatest unknown is whether companies will return to large commercial spaces after they have gotten used to work-from-home and distributed teamwork scenarios. Landlords may have to make concessions in rent reduction and lease amendments to keep existing tenants and attract new ones.

Another Spike in Unemployment Numbers

An additional 6.6 million Americans filed for unemployment for the week ending 4/4/20. This brings the total to 16 million people who have lost their jobs in the last three weeks. Some experts predict that by the end of the month, more than 20 million will be out of work. That would put the unemployment rate at nearly 15%, the highest since the Great Depression, when it rose to 24.9%.

Bloomberg also reports plunging job postings on Indeed.com, signaling a worldwide blow to the labor market as compared to a year ago. As predicted, industries such as service, hospitality, and tourism are bearing the brunt of these losses, falling around 70% from last year.

Federal Reserve Announces New Round of Loans

The Federal Reserve will be providing up to $2.3 trillion to help support small businesses and consumers, as well as state, cities, and municipalities.

This includes:

• Additional liquidity for financial institutions participating in the Paycheck Protection Program (PPP)
• An additional $600 billion for the Main Street Lending Program for small and medium-sized businesses
• A newly created Municipal Liquidity Facility with up to $500 billion in loans and $35 billion in credit protection for state and local governments
• Expansion of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) and the Term Asset-Backed Securities Loan Facility (TALF) to up to $850 billion in credit and $85 billion in credit protection from the U.S. Treasury

According to the Institute for Health Metrics and Evaluation (IHME), U.S. deaths due to COVID-19 may have peaked Sunday, 4/12; however, these projections could change depending on when social distancing guidelines are loosened. Regardless, the economic impact worldwide largely remains to be seen. Countries cautiously reopening their economies, such as Spain, may give us insight into the process and challenges of recovery.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.