National Asking Price Remains Steady: April 8, 2020, Market Update

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As has been the trend recently, the national asking price remained steady this past week. Inventory inched back up but is still below the five-week moving average.

As we discussed last week, the national-level summary doesn’t give us an accurate look at how the market is reacting to the coronavirus pandemic.

Instead, we need to look at how pricing varies between three different types of listings:

1. Active listings (on the market for more than one week)
2. New listings (posted within the last seven days)
3. Deactivated listings (no longer listed)

Please note that we made some changes to our methodology since last week’s report to improve accuracy. The price of new listings will appear higher this week than last. The change has been made in this week’s spreadsheet as well (the password to the spreadsheet is ‘insights’).

As you can see in the above chart, pricing has not moved much over the past week. The small changes we do see are consistent with the patterns we’ve seen over the past few weeks.

• New listings are being discounted about 8% below listings that have been active for more than one week.
• The price of listings being taken off the market is low (and decreasing). This suggests that lower-priced properties are finding tenants, while higher-priced options sit on the market, driving the price of active listings up.

I am encouraged to see that prices have not fallen significantly since last week—it shows the market has decreased, but it’s relatively stable. That being said, I do expect prices to dip in the near future, and I’ll explain why.

When we look at the pricing of the three different listing types, we see three distinct price points—prices that have held, more or less, two weeks in a row. In a normal market, I would expect that pricing for all three listing types would be more similar to one another. The variance shown in the chart above suggests to me that current listings are overpriced.

In the above chart (and in my analysis in general), I am using deactivated listings as a proxy for “market rates.” Given the data we have, it makes sense that the price of listings that are taken down best represents the average price of leases being signed.

With that in mind, here are a few key takeaways:

• Landlords appear to be lowering their expectations for rent given the current economic climate. The asking price for new listings is 8% lower than older listings.
• The discounting might not be enough. Landlords may have to lower their asking prices further in coming weeks to come closer to market rents.
• Active listings are, on average, $163 over market rents.
• New listings are $75 over market rents.

Of course, this is national data and is not true for every market.

When looking at this on a state-by-state level, we can see that certain states have a much bigger difference between the asking price for newly listed properties and the asking price for deactivated listings.

For example, you can see that in New Jersey, new listings are priced 18.5% higher than listings that are coming off the market. Last week, that number for New Jersey was 17%. To me, this suggests landlords in New Jersey will, on average, need to lower their prices 17–19% to find tenants quickly.

To get this data on a city-level basis, make sure to download this week’s spreadsheet (the password to the spreadsheet is insights). Using it, you’ll be able to see what the approximate “market rate” is for your city and set your asking price for vacant units appropriately. This should be a very helpful tool during this rapidly changing environment, but remember that things are likely to keep changing. Make sure to download our spreadsheets weekly to stay up-to-date.

Please note that Maine, Rhode Island, and Vermont (three states with large differences between listing prices) are small states, with relatively low inventory. This relatively small amount of data can lead to weekly spikes, as we see above, which are not necessarily indicative of a trend.

Unemployment Numbers

First-time unemployment claims for the week ending 3/28 reached 6.648 million, 101% higher than the prior week’s record of 3.307 million.

Numbers for the week ending 3/21 had primarily impacted travel, leisure, accommodation, and food services. But the most recent filings were widespread and included healthcare and social assistance, manufacturing, retail, wholesale, and construction. Every state in the country reported increases, but the largest were in Pennsylvania, Ohio, Massachusetts, Texas, and California.

The 3,000% increase in jobless claims since the beginning of last month represents roughly 6% of the total U.S. workforce. When this is added to those who were unemployed before the current crisis, it produces an effective current unemployment rate of 9.5%.

A subsequent U.S. Bureau of Labor Statistics statement on 4/3 put the current rate at only 4.4%, but this monthly report is based on a survey conducted 3/3–3/14, before the massive applications for unemployment occurred at the end of the month.

Treasury Secretary Steven Mnuchin and an economist with the Federal Reserve Bank of St. Louis have projected that unemployment could go as high as 30%–32%. This would triple the rate at the worst of the 2008 recession. The highest level during the Great Depression was just below 25%.

While these numbers are large, this is largely in line with what experts have been predicting over the last several weeks. At this point, we still believe that the pace and timing of rehiring will be the largest factor in the long-term effects of the current spike in unemployment.

Coronavirus Aid, Relief, and Economic Security (CARES) Act Signed into Law

We now have some more details about the CARES act, including information for homeowners. The $2.2 trillion package includes provisions for homeowners hurt by the crisis to delay mortgage payments for up to 12 months. It is expected that the Fed will follow up with a line of credit for mortgage servicers who still need to make payments to mortgage investors. The Fed has already announced plans to buy commercial paper, corporate bonds, and an unlimited amount of mortgage bonds.

CARES also includes:

• $1,200 payments to individuals who earn up to $75,000, and $500 for each child in the household (with the amount of payments phased out for household incomes between $75,000 and $146,500)
• $350 billion in forgivable loans to small businesses that keep employees on their payrolls
• Incentives to retain employees of 50% refundable payroll tax credits on wages
• Relaxed net operating loss-reduction rules
• Postponed payment of employer social security payroll taxes until 2021 and 2022
• Unemployment benefits for sole proprietors and the self-employed
• An increase in unemployment benefits of $600/week for four months
• $425 billion for corporate assistance, through a fund controlled by the Federal Reserve that would provide loans to distressed companies

CARES Act’s Paycheck Protection Program (PPP) Goes Into Effect

The PPP, which pays eight weeks of eligible employers’ labor costs through potentially forgivable loans of up to $10 million, launched with Bank of America as the only major bank ready to accept applications. Delays are due to financial institutions’ concerns over lack of guidance from the administration, Small Business Administration (SBA)—which is administering the PPP—and the Treasury Department.

More specifically, bankers are hesitating because of:

• Worries about the program’s low rate cap
• A short, two-year amortization schedule
• Uncertainty over conditions for loan forgiveness and their ability to sell loans in the secondary market
• A lack of detail on what happens if borrowers file a fraudulent application or don’t meet loan conditions

You may be eligible if you have a small business (less than 500 people) that is impacted by coronavirus-related issues between 2/15 and 6/30. If you are able to continue to operate and retain employees over that period, the SBA can provide a maximum loan of 250% of your average monthly payroll costs during that period.

The intent of the program is to avoid employee layoffs and furloughs. If you have already laid people off, you can still qualify if you re-hire them before the end of June.

Only time will tell how these efforts will work to mitigate financial damage to businesses and the American workforce. BPInsights will continue to keep a pulse on changes to the economic climate, with an eye towards how real estate markets may be impacted in coming weeks. As always, let us know how we can improve and what data you’d like to see more of in the dedicated BPInsights forum.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.