Rental Prices Slow and Short-Term Rentals Increase

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As usual, you can find rental prices for every city in the country (by month now, instead of by week) in the accompanying spreadsheet. The password to access the data is insights.

Home Rental Price Growth Slows to Five-Year Low

Typical rent in the U.S. is now $1,594, 2.9% higher than 2019. But that increase is 0.5% lower than the previous growth rate and marks a five-year low.

That slowdown was seen in 33 of the largest 35 metro areas. Additionally, there were drops in rent in 16 regions between March and April. The biggest decreases were in Austin, Charlotte, Baltimore, and San Jose.

Increase in Short-Term Rentals

Rather than hold onto vacant units, more landlords have started to offer short-term, flexible leases. This includes month-to-month, three-, and six-month agreements. These types of leases have increased 70% in New York City.

Other new scenarios are termination riders to help entice new renters who might otherwise hesitate to move into a new property because of financial uncertainty. In some cases, landlords have developed clauses for rent-stabilized tenants who usually aren’t eligible for month-to-month leases.

Forbearance Rates Continue to Climb, But Won’t Impact Future Ability to Refinance

More than 4.5 million mortgages are now in forbearance, a number that makes up nearly 9% of all home loans and totals $1 trillion in unpaid principal. The rate of increase in forbearances, though, has slowed substantially—down 85% from April.

Forecasts indicate that loans in forbearance could still reach 10% to 12.5% of all mortgages.

At the same time, the Federal Housing Finance Agency (FHFA) announced that borrowers who have gone into forbearance can still refinance or buy a new home if they have made three consecutive monthly payments after forbearance ends.

In the past, credit reports that show a history of forbearance would disqualify borrowers for 12 months for Fannie Mae or Freddie Mac loans or refinancing.

Home Prices Are Lower than Before the Pandemic

Twenty-five percent of sellers who listed homes after the coronavirus outbreak priced them at a discount compared to pre-pandemic listings. This trend was more prevalent for homes above $600,000, which were listed with a 7.7% median discount. Listings for less than $200,000 had a lower median discount of 6.3%

New York, Baltimore, and Los Angeles had the highest percentages of discounted new listings. Pittsburgh, Baltimore, and San Antonio had the highest average discounts.

Some Eviction Bans Have Been Lifted

The CARES Act suspended eviction proceedings against anyone in a home or rental covered by a federally backed mortgage through May 16, 2020. The freeze was then extended through the end of June for all single-family mortgages and reverse mortgages insured by the Federal Housing Administration (FHA).

This has resulted in a confusing patchwork of regulations that vary from state to state. Texas, for example, was set to start allowing evictions on May 15, but the changes have resulted in renters in Texas being protected through August 23.

For properties that are not covered by federally-backed financing, as of June 3, evictions may have resumed in these states:

California
Colorado
Florida
Hawaii
Idaho
Kansas
Kentucky
Maine
Mississippi
Missouri
Montana
Nebraska
North Carolina
North Dakota
Rhode Island
South Carolina
Tennessee
Texas
Utah
Vermont
Washington
West Virginia
Wisconsin
Wyoming

An Updated Forecast for 2020

Home sales to fall 15% with flattening prices (versus original prediction of 1.8% decline)
Starts on single-family homes will drop 11% (versus original prediction of 10% increase)
There will be a short-term increase in sales in late summer/early fall
Buyers will make home offices more of a priority
Prices will drop in large metro areas as smaller secondary markets see greater demand
Inventory will continue to be tight

Fannie Mae and Freddie Mac Prepare to Return to Private Market

The two government-sponsored enterprises, which guarantee more than half of U.S. mortgages, are making plans to get out from under government conservatorship. That arrangement has been in place since Fannie Mae and Freddie Mac were bailed out following the financial crisis in 2008.

The organizations announced that they will be hiring financial advisors to help them make the transition. Among other responsibilities, advisors will assess the companies’ valuations, review business plans and options for raising capital, and evaluate regulatory requirements.

Affordable Housing Is Getting More Expensive

COVID-19 has caused drastic slowdowns in most markets. But at the same time, prices have increased in many lower-priced areas. More specifically, 90% of cities where prices rose the most year-over-year posted median home prices below the national average.

Results in April include Detroit (up 27.9% to $159,900), Memphis (up 22% to $217,000), and Philadelphia (up 19% to $250,000).

Rent for Multifamily Properties Stayed More Stable Than Expected

Rent payments for May exceeded expectations at the end of the second week of the month. Nearly 88% of apartment households had made full or partial payments—a better performance than in April.

The statistics, from the National Multifamily Housing Council, did not include government-subsidized affordable housing properties. The results for less expensive, class-C properties were about 5% lower.

Analysis of the results shows that funds made available by the CARES Act made some tenants more able to pay their rent in full and on time.

Homes Sales Are Down—And Up

Sales of existing homes dropped 17.8% in April, the biggest month-over-month fall since July 2010. This included single-family, townhomes, condos, and co-ops. At the same time, the median price rose 7.4%, the 98^th consecutive month of year-over-year gains.

By contrast, new pending sales rose nearly 50% for the week ending May 10 compared to April. New for-sale listings increased 12.5%, but were still 27% lower than a year ago.

Lowest Mortgage Rates Predicted to Go Even Lower

For the week ending May 29, the average 30-year fixed interest rate fell to 3.15%, the lowest rate recorded by Freddie Mac in 50 years. That’s the third record low in the past three months.

But Fannie Mae’s Housing Forecast predicts that the average rate for the year will be 3% before it falls to 2.9% in 2021. It also sees increases in existing home median prices from $272,000 to $275,000 this year, and to between $279,000 and $300,00 in 2021.

All of those changes are expected to drive $1.5 trillion in mortgage refinancing this year, a 17-year high.

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