Covid Yet to Affect Housing Prices: March 27, 2020, Market Update

Welcome to the very first release of BiggerPockets Insights. This is a project we’ve been working on for a few months, and we’re very excited about what we have in store. BPInsights will provide our Pro and Premium members with the best real estate investing data available. This will be delivered to you in the form of written content, video content, and on-site tools. Our goal is to supply you with unique data to help you make the most informed investment decisions possible. This is a massive expansion of the Pro and Premium memberships, and we’re very excited to share it with you.

All that being said, this is not exactly how we planned to launch BPInsights. The original plan was to build some great on-site tools, create a back catalog of dozens of articles and whitepapers, and launch in the second half of 2020.

But the world has changed dramatically in the last few weeks.

Rather than wait a few more months to launch BPInsights, we’re launching this week. We now face a rapidly changing economic environment, and we know that our data can provide valuable information to our members. Right now, we mostly have rent data, but we’ll be acquiring new data sources over the next few months and will get it to you as soon as we can.

In the meantime, we’ll keep plugging away at our original plans for useful tools and much more content, so keep an eye out for a full launch later in 2020. But for now, you can expect a weekly email from us with as much data-centric content as we can produce. In exchange, we’d love to hear your feedback on how we can improve the content and what data is most valuable to you. I’ve created a new forum thread here to gather your feedback about BPInsights.

We’re also offering the full dataset this piece is based on as a perk of BPInsights, available for our Pro and Premium members to use for individual analysis, here (the password for the spreadsheet is proonly).

Rental Market Update: March 25, 2020

With the coronavirus causing volatility in the stock market and fears of a spike in unemployment across the globe, we’ll use BPInsights data to examine whether the rental market has been similarly impacted by recent events.

In order to measure the impact of the coronavirus on rental pricing, we examined millions of rental listings over the last quarter: 12/27/19–3/20/20. We’ll also be looking at inventory (measured by total number of listings on the market) and first-time unemployment claims (pulled from government data, which lags a week behind our rental data—we have data through 3/14/20).

National Inventory & Price Trends

On a national level, it appears that the coronavirus pandemic has not yet affected rental housing prices.

Nationally, the average asking price for rent only dropped $1, and rents are up 1.1% over the last 90 days, from $1,528 to $1,544.

Inventory has moved a bit more in recent weeks, rising 2.8% week-over-week (WoW), but remains down nearly 11% over the last 90 days.

However, if you zoom in on this chart, you can see a possible shift in trend regarding inventory.

Looking at the blue inventory line on this zoomed-in chart, you can see what might be the start of a change in inventory patterns. Inventory declined sharply over January, which is likely a seasonal change. Over the course of the next six weeks, inventory increased slightly, but from a statistical perspective, it was basically flat—from 12/27–1/31, it declined 12.3%, and from 2/7–3/13, the change was 0.08%.

From 3/13–3/20, we saw a 2.8% increase in inventory. It’s nothing to be overly concerned about at this point, but we will keep an eye on this each week with BPInsights market updates.

Keep in mind that due to the zoom of this chart, the weekly changes look more dramatic than they really are.

New Unemployment Claims

Next, we’ll take a look at unemployment data. Specifically, we’re looking at the number of new unemployment claims, seasonally adjusted by week, which I downloaded from the Federal Reserve St. Louis website.

This chart is where things really start to get interesting. Since the end of 2018, the number of new unemployment claims had been remarkably stable. It was almost completely flat for well over a year—until last week. For the week ending on 3/14, new unemployment claims shot up a staggering 33%. That is the largest 1-week change in the last five years. In fact, I looked at some older data, and it appears to be the largest 1-week jump in over 10 years.

Above is a chart looking at this data back to the 1960s, to put things in perspective. While the 33% WoW jump is significant, we’re not even close to where we were during the financial crises of 2008–2009. That being said, this is just one week of data, which came in before many states started shuttering businesses and issuing “shelter in place” orders. Unfortunately, next week will likely be worse.

UPDATE: On 3/26/20, the U.S. Department of Labor announced that nearly 3.3 million Americans filed first-time unemployment claims for the week ending on 3/21. This figure shatters previous records and represents a 1,171% increase over the previous week. Stay tuned next week for our analysis on how this will impact real estate markets.

Round Up of Government Action

Federal Stimulus

As of the time of writing (3/25/20), the Senate passed a nearly $2 trillion stimulus package. The package has yet to pass the House of Representatives, and few details have been made public, so things are likely to change in the coming days. However, some of the big-ticket items have leaked out, and the highlights include:

An extension of unemployment benefits for up to four months. This should come as a big relief to many landlords. As we discussed above, we are expecting to see a dramatic increase in unemployment in the coming weeks, particularly in the service and travel industries. Providing financial assistance to people who have lost their income for four months will help tenants make rent for the next few months. Hopefully by the time these benefits run out, the need for social distancing will be reduced, and small business will begin to rehire staff.
$1,200 to Americans who make up to $75,000/year. In addition to helping landlords cover their costs, this is likely to help tenants who have had their incomes disrupted make rent. Remember that your tenants likely still have many other bills to pay, and all $1,200 cannot be expected to be put towards rent. No timetable for the distribution of checks has been announced.
$367 billion for small business loan programs. This could be helpful for many business owners here on BiggerPockets, but unfortunately, the details of who is eligible for loans and how to apply for those loans have not yet been released.
$100 billion+ for state and local governments to combat the virus.
$100 billion for hospitals. While this probably won’t impact the real estate market too much, I think we can all agree hospitals deserve the support right now.
$500 billion in liquidity assistance for major corporations, with $50 billion slotted for the airline industry.

Housing Policy

The Department of Housing and Urban Development (HUD) suspended all foreclosures and evictions for single family homes with FHA-backed mortgages for the next 60 days (effective 3/18/20). Unfortunately, in many ways this directive has created more questions than answers. It seems that HUD is essentially asking loan servicers to be more generous in offering the standard loss mitigation programs that are typically available. It is estimated this would cover about 8 million mortgages. Not much has been said about what happens after 60 days for mortgagees who have gone into default. You can read the full text of the press release here.
HUD has released guidance for multifamily stakeholders. You can find the full document here. This document mostly provides information on how to help tenants navigate the crisis, but does also address the question of whether HUD will provide rent relief, and the answer is not what tenants or landlords want to hear. HUD’s response is:

“Multifamily Housing encourages all owners to work with impacted residents and families to adjust rent payments, enter into forbearance agreements, and lessen the impact on affected residents. At this time, no additional subsidy funding has been made available.”

The mortgage industry is lobbying the federal government for widespread, national action. They are asking that servicers be allowed to provide borrowers a 90-day break from their mortgage payments, but also note that the forbearance periods could need to be extended to a full year. You can read more about it here.
Federal-level action could come in the next few weeks. At this point, however, any landlords at risk of being foreclosed on or missing mortgage payments due to loss of rental income should look to state and local programs. Simply Google “local assistance programs” or call your city or state government for more information.

Conclusion

At this point, we unfortunately do not fully understand the impact the coronavirus epidemic will have on the rental market in the United States. Thus far, policies to counteract the virus are being enacted on a state-by-state level, with federal action expected in the coming days. We know it can be very difficult to be patient during these uncertain times, but we advise our members not to make any drastic decisions before getting all the facts. We expect to know a lot more in the next week or two.

If you are wondering what to do about your rental portfolio, here are a few parting thoughts:

The ultimate effect of current economic conditions on real estate remains to be seen. For the most part, the stock market volatility and recent uptick in unemployment claims have not yet affected rental pricing or inventory in a meaningful way.
Unemployment claims are almost certain to continue rising over the next few weeks. This will likely lead to an increase in rental inventory as listings sit on the market longer. It will also likely lead to downward pressure on rent prices.
Due to the above, it may be difficult for many tenants to pay rent. This is going to be difficult for both tenants and landlords, but we encourage landlords to work with their existing tenants to find a mutually agreeable solution. Finding new tenants will be very difficult in this market, and working with people negatively impacted by the crisis is simply the right thing to do. You don’t want to lose great tenants for what is (hopefully) a temporary slowdown in the economy. If you need to fill out forms to help your tenant get rental assistance, fill them out quickly. If you need to work out a new payment structure, do it. It’s in the best long-term interest of your business, the tenants, and the American economy.
All we really know right now is that there are a lot of unknowns. Don’t panic. We don’t know how long economies will be shut down. We don’t know the impact of federal stimulus. We don’t know if renters and mortgage assistance programs will be created. Stay the course. Remember that real estate investing is a long-term game.
Keep an eye out for great deals! Interest rates remain at historic lows, and traditional home buyers (non-investors) are likely to pause their home searches in coming weeks.

Over the coming weeks, we will continue to monitor the markets and provide weekly updates to our Pro and Premium members—and will share new data as soon as it becomes available.

Sources:

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