No one could have predicted the rental market trends in 2020. The market faced many hurdles as the impact of the coronavirus pandemic led many people to move, including a large percentage that bought their first homes and others who moved in with friends or family members to cut costs.
Rental prices dropped in major cities, including New York and San Francisco, as employees quickly switched to remote working. Moving to tech hubs such as Austin, Raleigh and San Francisco was largely put on hold as employers encouraged workers to work from home through part of 2021.
The pandemic is likely to change the expectations and behaviors of renters for an extended period as people grew accustomed to conducting virtual real estate tours and finalizing leases and other financial transactions at home so they could easily social distance.
Here are six rental market trends we expect will remain the "new normal" for renters and property managers.
Rental prices for apartments will likely remain stable during the first half of 2021, which can help consumers who have lost jobs temporarily or had their hours slashed because of government-mandated shutdowns, said Brad Dillman, chief economist at Cortland, an Atlanta-based multifamily investment and management firm.
“Overall, multi-family markets have remained tight from an occupancy perspective, even as rent growth has been weak to negative as operators focus on renewals…As a result of this resiliency, we expect rent pressures to rebound in the second half next year. This rebound appears sustainable given the relative strength of the employment recovery, even as it, in turn, is likely to slow." -Brad Dillman, chief economist at Cortland
Rents are a mixed bag with dense urban areas seeing weaker rental prices and drops in average rents, while some suburban sunbelt areas project small increases in rents, said John Loper, an associate real estate professor at the University of Southern California.
“There has been a shift of tenants out of urban areas with high rents due to employers having employees work from home and employees relocating to less expensive and less dense areas," he said. “The big question is how many of them will stay in the less expensive areas they have relocated to and how many will return to urban areas."
Denver reported a 2.6 percent decrease in rents downtown (RentPath data shows an even steeper decline), but an increase of 1.3 percent in its suburbs, said Jenny Usaj, owner and broker of Usaj Realty, a Denver-based real estate brokerage.
“I know many luxury apartments downtown offering every amenity concession possible to keep from dropping their rental rates hoping for post-pandemic demand to return to the core urban area."
There have been significant price declines on rentals across the board, even more significantly for expensive apartments and this trend should continue for at least another quarter, said Edward Mermelstein, CEO of One and Only Holdings, a New York-based luxury real estate investment consulting firm.
“As inventory begins to shrink, we will see prices stabilize," he said. “High-end units are not immune and in certain cases have been impacted more severely than lower-end rentals."
Consumers continue to buy homes as interest rates remain low. The National Association of Realtors reported that existing home sales rose for the fifth consecutive month in October. In 2021, home sales are predicted to rise to 5.5 million, the highest annual mark since 2006 with the median home selling for a record high of $293,000, the NAR said.
The Washington, D.C.-based trade group warned that prices for homes will rise by 8.0 percent in 2021 and 5.5 percent in 2022 with 30-year fixed mortgage rates rising slightly to 3.0 percent in 2021 and 3.25 percent for 2022. A survey of more than 20 U.S. economic and housing experts said that job conditions should improve as the economy rebounds in 2021 — GDP should yield 3.5 percent in 2021 and 3.0 percent in 2022 while the unemployment rate will decline to 6.2 percent next year and to 5.0 percent in 2022, Lawrence Yun, NAR chief economist and senior vice president of research, said in a written statement.
“It is an understatement to say the year 2020 has been filled with challenges and full of surprises," he said. "Yet, one astonishing development has been the hot housing market as consumers eyed record-low mortgage rates and reconsidered what a home should be in a new economy with flexible work-from-home schedules."
The top 10 markets that performed well during the pandemic will likely continue this trend:
Even though essential workers started receiving vaccinations of the coronavirus in mid-December, it will be at least several months before there's a wider distribution of the vaccines. Potential renters could still be reluctant to visit an apartment in person and will opt to look at floor plans online through various online platforms.
Since many financial transactions are online, renters can expect to sign up or renew an apartment lease online, becoming a new standard rental market trend.
Apartments will also continue to host virtual events, such as fitness classes and wine tastings, said Jason Deppen, chief operating officer of TFLiving, a Pawleys Island, SC-based, tech-enabled amenities platform that serves more than 100,000 units of apartment, condo and senior living buildings. Renters have shown an interest in these offerings and engagement rose as more virtual events were added such as wine tastings, trivia nights and cooking classes.
“We've converted over 70 percent of our clients to virtual services since April with a portion of our clients also doing a hybrid approach of safe, socially distanced in-person fitness classes, as well. Our virtual event attendance continues to climb about 10 percent month over month. Virtual events are becoming a 'new normal' as a safe way to connect." -Jason Deppen, chief operating officer of TFLiving
Some apartments even hosted virtual holiday parties and had “great engagement from holiday resident trivia competitions to cocktail hours with drink kit delivery," Deppen said.
Even in a post-vaccine world, completely virtual fitness classes and events are a “great way for apartment buildings to provide amenities to residents who travel often or whose schedules don't allow them to participate in in-person activities," said Maggie McDaris, vice president of programs and partnerships at LulaFit, a Chicago-based amenity management firm that offers multi-family residents and office tenants live and on-demand fitness and mindfulness classes and social events.
“We host hybrid events where tenants pick up physical elements that will enhance the experience, such as cocktail kits, DIY supplies or recipe ingredients and then engage with a live or on-demand virtual workshop or class," she said.
The rental market trend of job seekers moving across the country for a new job could be impacted as remote work is now becoming a common option. The number of employees demanding the choice to work remotely has increased during the past decade and more companies mandate their employees work remotely through the middle of 2021.
Increased workplace flexibility will remain intact for the foreseeable future since many companies transitioned their workforce to remote work in 2020, Dillman said.
“We don't anticipate job seekers placing as much emphasis on location as it relates to their commute as in years past," he said.
Cities may lose some of their former appeal due to the ongoing COVID-19 pandemic, but as rental prices fall sharply in some cities, they are “slowly but surely going to become more attractive," Dillman said.
“The strength of these trends, according to RealPage, is reflected in the fact that apartment occupancy rates are now lower in San Francisco than they are in Houston, a market known to be easy to build in," he said. “Such a dynamic is mind-boggling when we recall that people were renting tents in backyards in the Bay Area just a few years ago."
Renters will only make the switch to being homeowners if housing prices remain affordable. Housing prices rose in some cities and that trend is likely to continue.
Mortgage rates saw a sharp decrease in 2020 due to the pandemic. By the latter half of 2021, mortgage rates will likely increase and there will be a slowdown of home buying and perhaps an increased demand for single-family home rentals and apartments, Dillman said.
“Given the undersupply of housing, estimated by ourselves and others, it is possible the country will see a renewed focus on housing affordability narratives as rent growth pressures resume next year," he said.
Evictions will be a significant issue in the first and second quarter next year as the eviction moratoriums are lifted, Loper said. The second wave of COVID-19 and the corresponding shutdowns of many sectors means there is increased pressure on many renters who are losing hours or losing their jobs.
“The good news is that we have been running around 90 percent of rents being collected so we are only dealing with 10 percent of the rental stock with eviction potential," he said.
Demand for affordable housing is high now and will only get worse for people looking for one-bedroom apartments in suburban areas, said Freddie Zamani, CEO of EcoSmart Builders, a Calabasas, CA-based construction company.
“You can't find any affordable single units around Los Angeles without paying a premium."
The costs of construction materials started to increase in summer 2020 due to the unprecedented demand, impacting companies like Weyerhaeuser Co., the largest North American wood producer. The lumber supply chain was impacted by the pandemic and because some homeowners conducted much-needed renovations, built decks and underwent other renovations. The higher costs of lumber also pushed home prices higher — NAR said the average new single-family home sold for an additional $16,148 in August compared to the middle of April.
“We expect builders will feel this pinch over the quarters ahead, possibly causing a slowdown with new construction," Dillman said.
The pandemic is also going to bring the development of new apartments to a screeching halt, said Dave Marcinkowski, managing partner with Quext, a Lubbock, TX-based apartment technology company and Madera Residential, a property management company.
“In time, demand will return and prices will go right back up," he said. “The key today is being able to weather this storm, which we believe will have a negative impact for up to two years."
Rental market trends will be impacted by the coronavirus and the higher unemployment rate for an extended period. As the economy seeks to rebound in 2021, recovery could be slow in the beginning, causing more concern for consumers who are unsure about their jobs and finances. Renting an apartment will remain an attractive option for people who don't want to be saddled with a mortgage with an uncertain future.