New Listing Prices Increase as Real Estate Market Reopens—May 2020 Market Update

A note before we get into this week’s report:

As you may be aware, BPInsights was originally set to launch in late 2020. Then the coronavirus struck. Feeling a need to provide investors with data-backed information, we started releasing market reports in March to shed light on the unique circumstances impacting the U.S. housing and rental markets. Since then, we’ve been publishing articles weekly to keep our Pro and Premium members up to speed on the rapidly changing economic climate. Now that things have started to calm down—and news has become less frequent—we’ll be scaling back the frequency of market updates as we move BPInsights towards what we originally intended.

BPInsights was never meant to be a weekly newsletter. Rather, our vision for BPInsights is to deliver a robust library of data-driven content that will feature several new articles each week.

• You’ll receive content from a variety of sources, on a variety of topics, rather than a simple weekly market update.
• You’ll have access to market updates monthly instead of weekly, a cadence more appropriate for non-crisis market activity.
• You’ll get valuable data about home prices, foreclosures, rent-to-price ratios, and much more, rather than only metrics covering the rental market.

We hope that these reports have been useful to you during these unusual times. In the coming weeks, we will continue to release them every other week, but as we move towards a more robust launch of BPInsights in the coming months, they will become monthly. But don’t worry—you’ll be getting more data and value, not less. We’re simply shifting our attention away from reacting to the coronavirus crisis and towards creating long-term and lasting value for our Pro and Premium users.

U.S. Rental Market Trends

The U.S. rental market continues to modestly increase in average listing price, with a slight decrease in the total number of active listings.

Because weekly data can be volatile, I am going to show active, new, and deactivated listings as a moving average from here on out. A moving average simply means that the data you see is not just the data for this week; it’s an average of the data from the last five weeks combined.

This is a useful tool in smoothing out data that might have a lot of variance from week to week. For instance, weeks toward the end of the month might have more deactivations, and weeks toward the beginning of the month might show more new listings. Weekly changes in the data shouldn’t dictate anyone’s strategy, so I am “smoothing” out the data to make it more useful over the long-term—and to make trends easier to see.

Examining this new chart, we can see two trends emerging much more clearly.

First, the price of new listings was going up modestly from mid-April to early May, and it appears to have accelerated in this past week, jumping 2.5%, from $1,815 to $1,861. This is significant, because remember, the last week’s data point on the blue line is actually an average of the last five weeks. So, this week’s data was high enough to pull up the average 2.5%, which shows a genuine shift in the trends.

My best guess as to why this is happening is that economies are starting to reopen, and landlords and property managers have renewed optimism. 

The second (and perhaps even more encouraging) takeaway from this chart is that deactivated listings have seen growth in the five-week moving average over the last several weeks. Remember that deactivated listings are a proxy for “average rent,” and seeing this metric rise probably means that the average price of leases signed is going up as well. That is great news for landlords and property managers who have been discounting their units recently to find renters.

We’ll keep a close eye on these trends over the next several weeks and provide another update two weeks from now. In the meantime, you can still . The password is insights.

Record High Retention, But Record Low Revenue Growth

Apartment retention rates hit a record high in April. Nearly 60% of tenants renewed in the same units. That’s more than 3.5% higher than in 2019. But revenue went up only 2.73%, the lowest increase since the beginning of 2011.

RealPage attributed this imbalance to landlords and owners who “prioritized the public good” by offering payment plans, waiving various fees, pausing most eviction, and keeping existing prices in place for renewals. Month-to-month extensions and short-term renewals were also offered to help tenants faced with job losses and reduced work hours.

This data supports what we’ve been hypothesizing at BPInsights over the last several months—that the reduction of inventory and transaction volume does not necessarily mean that vacancy is going up. Rather, we believed that tenants were staying in apartments longer, which is supported by this new study. It’s good news for everyone, really.

Mortgage Requirements Are Still Getting Tighter

Even though mortgage rates are at historic lows, it keeps getting harder to qualify. It’s not a surprise that many lenders tightened loan requirements to protect themselves from prospective borrowers who lost their jobs or might soon lose them. A couple of trends include lenders who have eliminated qualified mortgage programs and reduced the number of jumbo loans. They have also boosted the necessary FICA score for FHA loans to as high as 660.

This dynamic will be interesting to watch for real estate investors. If loans are difficult to come by, buyer demand could drop, leading to a corresponding drop in prices. So far, that has not happened, as buyer demand has outpaced supply in most markets through the crisis. 

Delinquency Rates Rise

The headline is that all types of mortgages overdue by 30 days or more jumped 59 basis points to 4.36% in Q1 2020. But the statistic is based on a Mortgage Bankers Association report that counts loans in forbearance as late payments.

More specifically, the FHA delinquency rate jumped 113 basis points (its second-highest quarterly increase), and the VA delinquency rate rose 78 basis point (its highest-ever quarterly increase).

Late rent payments increased, too. Incomplete payments were up 93% from March to May.

Across the country, 22% of landlords surveyed said they received only partial payments in March, but that went up to 33% in April and 42% in May. Most said that payments were incomplete because tenants “didn’t or can’t pay in full.” But 14% percent attributed the situation to vacant units, 10% to rent discounts, and 12% to deferred payment agreements.

A Primer on Payment Plans

As landlords and owners work to strike a balance between tenant needs and their bottom lines, many have set new precedents by offering payment plans. These are some of the most common types:

• Deferred Payments: Renters make a partial payment for one month and then pay the balance over a period of one to six months.
• Flexible Payments: Tenants make payments as they can over the course of a month (timed to their paychecks or unemployment benefits) with no late penalties.
• Security Deposit Conversion: A portion of a tenant’s deposit goes toward the rent. This is an uncommon arrangement because of the risk property owners face without funds to cover damage or other unforeseen circumstances.
• Incentive Programs: Renters get discounts in exchange for actions like on-time payments over a set period of time or agreeing to extended renewal terms.

Proposed New Stimulus Package Could Help Property Owners

The House of Representatives passed the $3 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act. Although it received little Republican support, faces dim prospects in the Senate, and prompted a veto pledge from the White House, it includes .

Another Increase in Mortgage Applications

for the week ending May 8. New York, Illinois, Florida, Georgia, California, and North Carolina all saw double-digit increases in their application rates.

The Mortgage Bankers Association Refinance Index fell 3% for the same time period (and for the fourth week in a row). But refinances still accounted for two-thirds of the week’s overall activity—and at levels that were more than 200% higher than the same period in 2019.

A Short Housing Recovery?

Realtor.com has predicted a , but believe it will peter out by the end of the year. It also says prices will flatten because of a shift in buyers’ attention to secondary markets that offer more space for less money.

The site explains that prices have stayed relatively stable for the time being because both buyer demand and for-sale inventory have dropped. The 45% decline in available homes occurred when sellers decided to take their homes off the market instead of dropping their prices.

Biden Calls for Payment Forgiveness

Presumptive Democrat nominee for President Joe Biden has expressed support for temporary forgiveness for all rent and mortgage payments, an action that would be backed by massive federal financial support. This is a change from his earlier backing of delayed mortgage payments and a ban on evictions and foreclosures.

A group of progressive Democrats in the House of Representatives has also . The bill would create a federal fund to recoup landlords’ and lenders’ lost revenue streams if they agree to a set of renter protections for five years.

New Payment Deferral Repayment Option

that lets borrowers delay paying missed payments until their homes are sold or refinanced, or until the loan matures. This arrangement enables borrowers to go back to paying their pre-existing monthly mortgage amounts when forbearance ends instead of having to immediately start to pay the missed payments.

Homeowners who take advantage of payment deferral are still “eligible for a Freddie Mac modification if payment relief is needed in the future,” according to the Federal Housing Finance Agency.

Unemployment Climbs Again

Another 2.98 million Americans filed for new unemployment benefits in the week ending 5/9. That brings the , and, after updating the Bureau of Labor Statistics’ April numbers, puts the effective unemployment rate at 21.1%.