Rental Asking Prices Grow While Inventory Drops: May 6, 2020, Market Update

Nationally, the average asking price of rental units continued its slow but steady upward climb, increasing 0.6% week-over-week (WoW), to $1,995. Inventories dropped nearly 1.5% WoW, which is the largest one-week drop we’ve seen in the last four weeks.

As we’ve shown for the last several weeks, the price of new and deactivated listings has been trending downwards—but this week, that changed.

Deactivated listing prices spiked over 2%, to $1,740, which is a rather surprising change and the highest rate we’ve seen since the end of March.

The price of new listings shot up 3.7% WoW, to its highest point in the six weeks we’ve been tracking this particular data point. This metric is proving to be a more volatile indicator than I anticipated. Given the economic climate, I would have thought the asking price for new listings would continue to drop, but it has proven fairly resilient. 

Because we look at deactivated listings as our proxy for market rent, I was curious to see what was driving that rate back up after several weeks of consistent (but modest) declines. It turns out that only 21 mid-sized and large markets (cities with greater than an average of 50 deactivated listings per week) had positive price changes.

While many smaller cities also had positive price changes WoW, the volume of weekly deactivated listings was too low to draw many conclusions from the data. Remembering that this one week of data does not constitute a trend, it is still encouraging to see an uptick in deactivated listings in some of the country’s largest markets—many of which were hardest-hit by the coronavirus.

Meanwhile, both new and deactivated inventories have increased modestly. Again, it is positive news to see that inventory has ticked back up, but one week does not make a trend. Hopefully, we will see further recovery on this chart next week.

Make sure to check out this week’s spreadsheet to get detailed pricing data for your market (password is insights).

Note: There is a new spreadsheet this week called “Listing Type Master” (password is also insights_), which shows the pricing and inventory for every city and town in the country broken out by our three listing types: active, new, and deactivated. I’ve added a four-week moving average (4WMA) column to each of the spreadsheets to balance out some of the volatility in the listing data we’re experiencing during the COVID-19 pandemic. We’ll be releasing an in-depth analysis of this data in the coming weeks for Pro/Premium members._

March Home Sales Fall

With all of April’s turmoil, you might not remember March. But a Commerce Dept. announced that new home sales dropped by 15.5% way back then. This follows a decline of 4.6% in February. The average median single-family home price also fell 2.6%.

It’s cold comfort that economists expected these declines.

Regionally, sales fell by 41.5% in the Northeast, 38.5% in the West, 8.1% in the Midwest, and 0.8% in the South. The patterns appear to reflect the states and areas that were impacted by COVID-19 dramatically during the onset of the crisis.

Confidence in Home Buying Hits a New Low

Only half of Americans feels that it’s a good time to buy a home, according to Gallup’s Economy and Personal Finance poll. That’s 11% lower than last year’s survey and 2 points below the previous low in 2006 during the housing bubble. The record high was 81% in 2003.

Optimism fell more among homeowners (-16%) than among renters (-4%).

There was also a significant drop in those who believe the average price of homes in their area will increase in the coming year—down 22 points, to 40%. In addition, 25% of survey respondents expect home prices to fall. That’s more than double the 9% who shared that opinion last year.

The survey found that declines in optimism about home prices were more pronounced in the southern part of the country than in the eastern portion.

Remember, this data is for all homebuyers, and our recent surveys of BiggerPockets members show differing trends—that most investors still plan to grow their portfolios opportunistically during this recession.

Rates of Forbearance Rise

As of the week ending April 19, roughly 10% of mortgages backed by the Federal Housing Administration (FHA) or the Dept. Of Veterans Affairs (VA) are in forbearance. That’s a point higher than the week before. The forbearance rate also increased for Fannie Mae and Freddie Mac loans from 4.64% to 5.46%.

The number of forbearance requests actually fell compared to the previous week. But that rate was still about 100 times higher than in early March. Experts predict that requests will increase again as payments come due for May.

Nationwide Rent Strike

Renters across the country may be joining a national rent strike that stretches from New York to Los Angeles and across many towns in between. Organizers want corporate landlords to cancel payments for the duration of the COVID-19 pandemic—or at least through June.

In response, the National Apartment Association (NAA) has highlighted the damage a rent strike could do to investors and the businesses and employees that service multifamily residential buildings. To give you some context, mortgages for rental buildings in the U.S. with five or more units total $1.5 trillion.

As an alternative for aiding renters struggling with pandemic-related challenges, the NAA has proposed an extended and flexible mortgage forbearance plan, a revised eviction policy, and an emergency rent relief program. It is also in favor of a bill proposed by Rep. Maxine Waters that makes available $100 billion in direct relief to renters, as well as assistance to landlords and the homeless.

This issue is obviously a big concern for BiggerPockets members—and a popular topic on the forums right now. While the term “rent strike” does strike fear into the hearts of landlords, it appears to be a misnomer and not representative of what is actually being proposed in most cases. Most “rent strikes” are actually calling for relief for both renters and landlords and are not intended to force landlords to bear the brunt of the economic crisis. Regardless, this is certainly something to keep an eye on, particularly as the federal government debates more action to shore up the economy.

Record Homeownership in Q1 (Before Coronavirus)

Before the economic implosion triggered by the ongoing COVID-19 crisis, U.S. homeownership rates hit their highest level since Q3 2013.

More than 65% of Americans owned their homes in Q1 2020, 1.1% higher than Q1 2019 and 0.2% higher than Q4 2019. By region, homeownership rates were:

• 69.2% in the Midwest
• 67.6% in the South
• 62.4% in the Northeast
• 60.1% in the West

Homeowner vacancy rates also fell to 1.1% in Q1, the lowest level in more than 40 years.

U.S. GDP Falls

U.S. GDP fell 4.8% in Q1 due to COVID-19 related shutdowns and interruptions nationwide. This was a substantial but expected reversal of Q4 2019’s 2.1% increase. Specifically, consumer expenditures dropped 7.6%, durable goods spending plummeted 16.1%, expenditures on services declined 10.2%, exports fell 8.7%, and imports slid 15.3%.

By way of explanation, the Bureau of Economic Analysis explained that coronavirus lockdowns “led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.”

The worst is likely still to come since these results were tallied just two weeks into the shutdown. Goldman Sachs has warned that an additional 3-4% decline could be still to come after the Commerce Dept. revises the initial calculations.

Federal Reserve Updates

On the same day that the drop in U.S. GDP was announced, Jerome Powell, chairman of the Federal Reserve, cautioned that —but that the Fed will do everything it can to keep rates low and credit flowing. He attributed the wary outlook in part to the fact that complete data from Q2 has yet to be assessed, as well as to the time it might take consumers and businesses to regain their confidence about spending.

Powell also showed signs that the Fed would soon begin buying debt and would also reveal revised plans for its midsize business program. This comes at the same time that the Fed is backing off of its buying spree of Treasuries and mortgage-backed securities (MBS) in response to March’s mortgage rate spike. That initiative, which stabilized rates, purchased $459.1 billion of MBS, more than 2.5 times the original target of $200 billion.

Unemployment

For the week ending April 25, new unemployment claims totaled 3.8 million. This was more than 600,000 lower than the previous week. However, the new claims mean that 30.3 million people have filed claims in the last six weeks, which means that roughly one out of five Americans who were employed in February no longer have jobs.

Conclusion

As we’ve previously mentioned, the ability of shuttered businesses to reopen and rehire employees as the economy opens up will be key to how the country recovers (and the extent to which real estate markets are impacted). Now that several states are relaxing shelter-at-home orders, we’ll be able to soon assess how this dynamic plays out.