Big Rental Market Changes

31 March 2020

The situation in the U.S. rental markets was stable a little while ago due to the good employment rates, economic conditions, and demographics. The coronavirus pandemic drastically changed the face of the world’s economic landscape, and the United States had not been spared. 

According to the experts’ predictions, the state of the real estate industry gets worse at first, but then it would get better. The crisis affected different sectors of the real estate industry, and the worst consequences were faced by hospitality, retail, and entertainment businesses. The biggest income losses were suffered by the following facilities:

  • hotels;
  • bars and restaurants;
  • theme parks;
  • casinos;
  • conference centers;
  • sports venues.

It is difficult to tell exactly how long the crisis will last, but according to various predictions. the market crash is not going to happen, as it was in 2008. The housing market may slow down, as lesser people tend to buy houses due to economic uncertainty. So, we are likely to observe the short-term impact on the real estate industry.

According to the forecasts of the National Association of Realtors, the sales for the houses would drop at 10% in the coming months. More deals would be postponed due to the concerns from both sides – buyers’ and sellers’. It is apparent that in times of the economic crisis when some people have lost the sources of stable income, they are less likely to purchase a real estate.

In addition, the sellers are not listing their properties for sale, as they are worried that they will not be able to sell the house at a satisfactory price until the crisis is over. 

House for sale
House for sale

General Overview of the US Housing Market in 2020

High level of employment and the decrease of the mortgage rates resulted in the lack of affordable housing. Robert Dietz, a chief economist of The National Association of Home Builders claims that nowadays the housing deficit in the US is about 1 million properties based on population, the need to replace older homes and household formation. 

Another reason for the shortage of housing is the decline of the homebuilders and the impressive amount of under-building in 2010. The supply does not meet demand and the outcome is the affordability problem for homebuyers and renters. 

The experts from Fannie Mae’s Economic and Strategic Research Group predict that the problem of the housing deficiencies would be sold partially due to the growth of new construction homes by 10%, which would be single-family housing.

On the other hand, some experts make predictions that the situation could worsen due to the reason that more millennials enter the market and the amount of housing supply for sale may reach the lowest point in history. 

Rental Housing Market

With respect to the rental apartment industry, it was less affected by the outbreak of coronavirus pandemic compared to other sectors. For now, the greatest problem in the rental market is a large number of tenants who have been left completely without any income. These people are not able to pay their rent per month, so the homeowners should be flexible enough to provide defer of payments to the tenants until the situation stabilizes. This process may take several months.

Nevertheless, the forecasts for the nearest future are still positive. The previous long-term trends are going to renew after the end of the crisis. Thus, the risks for the owners of rental properties are quite low. The ongoing tendency in the rental market is the shortage of housing supply and a high level of demand. This leads to such innovation as build to rent construction. 

The rental market has an unfulfilled demand for lower prices. This led to a greater number of people who started earning higher wages. The result was the two currents in the rental market: one part of the renters with more money, and the other part – people who can not afford to buy the house or apartment.

Many people are working from home, so there will be a demand for larger units. For this reason, the home buyers need to focus on the single-family-built-for-rent options, as these would be profitable investments.

The Main Challenges for Rental Property Owners

The situation on the market affects not only the tenants but also the landlords. Market changes influence the rent prices and as a result, the renters cannot keep up with higher prices. 

The daily challenges for the rental property owners are maintenance, financial accounting, dealing with tenants and meeting the budget. The advancements in technology is another challenge to the landlords. 

Two main target groups of potential renters are the millennials and the people from generation Z. They are often the students who rent the apartment during study years or due to the reason they are saving money to purchase a home in the future. These groups are active Internet users and they are typically technologically literate. 

Therefore, the owners of rental properties should focus on the new ways of managing their business issues and learn how to apply modern technological solutions and tools. For instance, to simplify the usual procedures and establish long-term relationships with the tenants, a landlord may use the online property management software, online rental applications and rent collection, and also, online move-in/-out inspections.

Conclusion

In general, real estate experts predict that the activity in the housing market would be quite slow, especially during the spring season, owing to the coronavirus pandemic and the lower economic outcomes in 2020. 

It is difficult to tell what tendency will be dominating in 2020, whether it would be a buyers’ or a sellers’ market because both sides are delaying their deals until the situation improves. 

The rental market was less affected by the negative effect of the crisis, but the main difficulty is the delay of rent payments due to the rising unemployment and temporary insolvency of the renters. The best solution is to have patience and wait until things get back to normal. When the economic situation stabilizes, the underlying trends would renew.

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