COVID-19: The Effect On Rental Markets

August, 2020 – Pricey Cities Become Cheaper, Cheaper Cities Become Costly

While the rental market remains far from robust, two important factors — rent decreases in the country’s most expensive cities and rent increases in more affordable cities — suggest the coronavirus pandemic is causing a squeezing effect on rental prices across the country.

According to online rental platform Zumper, this seesaw effect has continued to accelerate this summer as the outbreak persists and more Americans are opting for cheaper places to live while working remotely.

“In our August national rent report, seven of the 10 priciest markets had larger year-over-year percentage decreases than the month prior,” said Anthemos Georgiades, co-founder and CEO of Zumper. “Additionally, five of these cities had larger month-over-month percent decreases this month than last. Meanwhile, of the top 10 least expensive cities in this report, only one city experienced a decrease in rent.”

The two priciest markets continued their downward trajectories with San Francisco and New York City one-bedroom rents down 11% and 7%, respectively, since this time last year.Of the top 10 least expensive cities in the 100 tracked in the report, only one city, Tulsa, Oklahoma, had a decrease in median rent for one-bedrooms.

“As historically expensive cities become cheaper and historically cheaper cities become more expensive, the gap between the price distribution of rentals across the country seems to be closing,” said Georgiades. Overall, the national one-bedroom rent increased 0.3% to a median of $1,233, while two-bedrooms grew 0.6% to $1,493. On a year-to-date basis, one and two-bedroom prices are up 0.7% and 1%, respectively.

Here are the top five rental markets:

1. In San Francisco, one-bedroom rent dropped another 2.4% last month to $3,200, while two-bedrooms decreased 3% to $4,210. Notably, both one and two-bedroom rents are now down over 11% since this time last year.

2. New York City, similar to San Francisco, continued to see rents drop with one-bedrooms declining 1.7% to $2,840 and two-bedrooms decreasing 0.3% to $3,200. Both one and two-bedroom prices in this city have fallen around 7% year-over-year.

3. Boston saw one-bedroom rent drop 2.5% to $2,350, while two-bedrooms dipped 3.1% to $2,810.

4. San Jose, California held on as the fourth priciest market with one-bedroom rent remaining flat at $2,300, while two-bedrooms decreased 1.4% to $2,820.

5. Oakland, California moved down one spot to become the fifth most expensive market with one-bedroom rent falling 3.5% to $2,220, while two-bedrooms grew 1.8% to $2,900.

In stark contrast to the nation’s most expensive cities, median rents in less expensive cities have been steadily increasing. Tulsa, Oklahoma, inched up one position to become the 99th priciest market with one-bedroom rent growing 5.1% to $620 and two-bedrooms increasing 1.2% to $820.

Memphis catapulted up eight spots to rank as 76th. One-bedroom rent jumped 5.1% to $820, while two-bedroom units climbed 4.8% to $880.

Durham, North Carolina moved up nine positions to 43rd with one-bedroom rent growing 4.8% to $1,090. Two-bedroom rent had a more modest growth rate, increasing 1.6% to $1,250.

Providence, Rhode Island moved down four spots to rank as the 22nd priciest city and tied with Washington, D.C. for the largest rental decline last month, falling 4.8% to $1,400.

Washington, D.C. remained the sixth priciest market and similar to Providence, Rhode Island, saw rent drop 4.8%, settling at $2,160, while two-bedrooms decreased 1.4% to $2,880.

Nationally, median rents continue to tick up during the summer moving season. Overall, the national one-bedroom rent increased 0.3% to a median of $1,233, while two-bedrooms grew 0.6% to $1,493. On a year-to-date basis, one and two-bedroom prices are up 0.7% and 1%, respectively.

If you are ready to invest in a rental property, looking for the right home or need guidance in selling your house, Talk To Tammy636.931.9100

Mortgage Rates hit another all-time LOW

The average U.S. rate for a 30-year fixed mortgage dropped to 3.15% last week. It is the lowest ever recorded in a Freddie Mac data series that goes back almost five decades.

The rate fell from 3.24% last week, setting a new record low for the third time in three months, according to the report.

Mortgage rates have fallen after the Federal Reserve began buying mortgage-backed securities to stimulate demand, said Chris Low, chief economist of FHN Financial in New York. The Fed has purchased more than half a trillion dollars of MBS after restarting in March a bond-buying program it used during the financial crisis more than a decade ago.

When the initial plan of buying $200 billion of MBS didn’t lower financing costs, Fed Chairman Jerome Powell said on March 23 the central bank would buy whatever was needed to move rates. It worked.

“The Fed is by far the biggest player in the mortgage markets right now, the biggest buyer of mortgages, and because of that, they have almost complete control over the interest rate,” Low said.

That means the central bank has the ability to stimulate home sales by driving rates to lows that most people wouldn’t have thought possible a few years ago, said Low.

“Every economist had doubts about how housing would fare during COVID-19, but what we’ve seen has been absolutely remarkable,” Low said. “Home sales are holding up extraordinarily well, and that’s in large part because of the mortgage rates.”

Last week, applications for mortgages to purchase homes gained for the sixth consecutive week to a level that was 6.7% higher than a year ago, when the U.S. was having a normal “spring homebuying season”.

A seasonally adjusted index measuring purchase applications jumped 9%, the Mortgage Bankers Association said in a report on Wednesday. The so-called purchase apps were up 54% from early April when most U.S. states were under lockdown orders to keep people at home in an effort to stem the spread of COVID-19.

Is now the right time to purchase a new home or make investments in this real estate market?

Talk To Tammy, 636.931.9100 or via tammy@talktotammy.com

Will Coronavirus Create Multifamily Investment Opportunities?

The past several years have been marked by an increase in average rent prices in many major U.S. cities, a lack of affordable multifamily housing, and a tight rental market. The pandemic and potential recession that may result isn’t likely to lead to more affordable housing, but it could lead to opportunities for some investors ready to cash in on properties in secondary markets.

Here are 3 ways that the multifamily housing market might be impacted by the pandemic.

1. House Foreclosures Could Lead to More Rental Demand

For the immediate future, tenants may be stuck in place, unable to move either due to logistical or economic reasons. Some multifamily buildings are prohibiting new residents, while others only permit remote showings, which can make it harder for prospective tenants to make a decision.

A report from Attom Data Solutions showed nationwide foreclosure lows in February 2020. However, Chief Product Officer Todd Teta predicts a rise in foreclosures once courts lift the ban on foreclosures and evictions. This could lead to more people seeking apartments, which could create a market ripe for landlords.

Much depends on what happens once the country re-opens—and when that phased reopening occurs.

“We want states to open up at a safe pace, but obviously, as the economic situation gets worse, that will impact the opportunities available in the market,” says Brant Brown, COO and CFO of Westmount Realty Capital, a commercial real estate investment and development firm in Dallas. “We’re looking at what the unemployment story is going to be, what collections are going to be, and how quickly the states re-open.”

2. Tighter Lending Restrictions Will Force Investors Not to Over-Leverage

The NMHC report spotlights tighter lending restrictions, showing the Equity Financing Index dropping from 61 to 13, and the Debt Financing Index plummeting from 68 to 20.

According to the report’s statistics, 75% of respondents said that equity financing was less available than in the three months prior; 71% of respondents said debt financing conditions were less favorable.

Especially now, Brown advises investors to avoid over-leveraging property or not leaving enough cash in the bank for repairs and emergency expenses, which could include tenants not paying rent due to job loss.

“A lot of multifamily operators have been running their properties cash-poor. In times like this, it really catches up with them,” Brown says.

In spite of low interest rates, underwriters will be looking to make sure investors have sufficient capital to manage the property.

3. Investors could find opportunities in suburban markets.

The second month of the pandemic in the U.S. found many city-dwellers temporarily fleeing their apartments for more space and a change of scenery.

“The fundamental story of [urban] markets is attractive, so I wouldn’t place bets on what the long term [impact] will be,” Brown says. “In the short run, a lot of people are very concerned about [the spread of the virus], and they’re going to vote with their feet.”

Cities may become less desirable places to live as the risk of infection continues to weigh on communities and remote work has people spending more time at home. Residents may seek larger apartments with more amenities in less populated areas, says Brown. “Wherever they move, it probably won’t be those city centers.”