We analyse the data and explore the trends that emerged over 2020, and what they mean for the future of the rental market industry.
2020 brought unprecedented changes in the rental market. The move to remote working pushed people out of cities and has led to an increase in home buying in the suburbs. Suburban areas have seen higher home sales growth than urban areas, and many homebuyers have increased their willingness to commute when they return to work in the office.
Rising vacancies in high-cost city center locations like New York, San Francisco, or Los Angeles have led to sharp drops in rent prices in these locations. And with the eviction moratorium still underway and a trend of increasing rent arrears, landlords aren’t rushing to fill vacancies, but are instead being very selective of their tenants.
However, additional government stimulus action such as the $600 Stimulus check in December, the continued increased unemployment benefits, and the new American Rescue Plan signed into law at the beginning of March, has helped many tenants catch up or stay ahead of their rent arrears.
As such, the market has remained relatively stable despite increased financial hardship experienced by many Americans in 2020.
In this article, we take a closer look at the data and the trends that have emerged over the last year, and what they mean for the future of the rental market industry.
Throughout 2020, our team saw clear trends emerging in the rental market that coincided with the impact of COVID-19, the government stimulus action, and shifts in renter demand.
Among these trends were a few key insights, including, an increase in missed and late rent payments, due to arising financial pressures on landlords and tenants.
The impact of COVID can be seen most clearly in the months of April and October where missed rent payments increased month on month by 2% and 2.3% respectively.
This trend can also be seen towards the end of the year, as on-time rent payments dropped over 4% between December and February of 2021.
Source: Landlord Studio
In addition to the increase in late and missed rent, occupancy rates at the end of the year and into 2021 have seen a gradual decline – with Landlord Studio data showing the average occupancy rates dropping 2% between October and February, falling below 95% for the first time in over two years.
Source: Landlord Studio
While major cities have seen dramatic drops in average asking rents, the affordable midsize market has continued to boom.
This trend is driven by the increased adoption of remote work for many people as a shelter at home orders have stayed in place. Because of this, there have also been several shifts in what tenants are looking for in their rentals, there was a rise in demand for homes with more space, preferably a home office, and of course, more affordable rents.
With this move away from larger cities, we’ve seen a rise in vacancies in higher-cost cities like New York, San Francisco, and Los Angeles, which has, in turn, led to massive decreases in rental prices in these areas. However, it has also led to growth in suburban areas and smaller cities.
As the pandemic remains a central challenge we expect to see a continuation of this trend of migration away from expensive city centres – at least for the first half of 2021.
Suburban areas have become increasingly desirable for both renters and first time home buyers: with more space being a main draw with many buyers and renters looking for homes with space to work from home.
With these factors in mind a few of the most competitive real estate markets for 2021 are likely to be: Seattle, Omaha, Lexington, Denver, Indianapolis, Portland, Oklahoma City, Sacramento, Oakland and Tulsa. These areas will continue to thrive in 2021, especially in their suburban areas (according to Zillow Research).
An equally important contributing factor for rising vacancy rates are growing concerns for landlords around evictions and increasing numbers around rent arrears. With the eviction moratorium having already been extended twice landlords need to be very careful with who they rent to.
However, houses are flying off the market because of a supply shortage and an increase in demand, largely due to a spring freeze in buying, paired with low interest rates and changing job situations and it is expected this trend of high demand will continue throughout 2021.
On a final note, further government stimulus action in the form of the $1.9 trillion stimulus package (The American Rescue Plan) was signed into law by the Biden Administration on March 11th. This bill includes another stimulus check, an extension of increased unemployment, and aid for several key areas of housing.
With this extensive financial relief package and the continued aggressive rollout of the vaccine, we wouldn’t be surprised to see the market returning to almost pre-COVID normality towards the end of 2021.
With all this said though, if 2020 has taught us anything, trying to predict the market’s future is a fool’s game. With the increased uncertainty caused by COVID-19 and a rapidly changing market, landlords need to be better prepared than ever with the right knowledge and property management tools ready to face the unexpected.