Getty
After April bucked the expectation for low rent payments but upheld the forecast of depressed home sales, here is how renting, buying and selling could unfold in the new month.
Renting
The rental market, which shleters approximately 44 million American households, is expected to slacken in May, even though April rent collection proved stronger than initially anticipated.
“With regards to May, there’s a lot of apprehension at this point in time, because people have been locked down in many parts of the country for a month now,” says Bob Pinnegar, president and CEO of the National Apartment Association.
April also added roughly 15 million jobless claims to the country’s roster of nearly 26 million, potentially pointing to a further weakening in renters’ ability to meet their monthly housing costs.
“There’s a lot of concern of what is that going to look like,” Pinnegar says.
In a recent countrywide survey of 1,200 families conducted by the national parent-led community organization ParentsTogether Action, half of the respondents said they would not be able to pay their rent or mortgage on May 1 without compromising on essentials such as food.
Rent payment plans
Landlords, meanwhile, continue to work with tenants experiencing financial shortfalls due to the pandemic. The new month could prove challenging for property owners too, especially mom-and-pop landlords, who will keep collecting bills while cash inflows from rent payments dip.
Luxury multifamily property owner, Bainbridge Companies, whose portfolio dots the East Coast, offers rent deferment plans that require a partial payment based tenants’ financial circumstances. The landlord does not yet expect an increase in requests for payment deferrals, which last through September and now cover 5% of renters.
“We have not had an influx of residents telling us they were not going to be able to make May rent,” says Dana Caudell, president of property management for Bainbridge.
Leasing activity
In a typical year, May would mark the ramp-up of the busy leasing season. There are already signs that tenants are looking to move despite the coronavirus. According to a recent survey by apartment search website, RentCafe, the percentage of renters willing to move as soon as they find a new apartment increased 10% from March to mid-April. At the same time, the share of those who want to stay put dropped 6%.
Caudell says Bainbridge properties are seeing a healthy dose of leasing interest with some prospective tenants stretching their move-in dates into the summer. For current residents, she anticipates a retention rate between 50 – 60% in May and June, on par with previous years.
Rent prices and inventory
Rent prices, much like home sale values, have remained stable during the coronavirus. As landlords have focused on preserving occupancy rates over the past several weeks, though, available stock could slumped in May – and could go further down in the summer as renewed eviction cases take time to resolve once bans expire.
What to watch for
According to ParentsTogether Action’s survey, 60% of families are yet to receive their stimulus money ($2,400 for couples in addition to $500 for each dependent child) or unemployment benefits. Rental industry groups as well as lawmakers have called for the establishment of rent relief programs, which the CARES Act did not provide for.
Rep. Ilhan Omar (D – Minn.) introduced the Rent and Mortgage Cancellation Act on April 17, which offers rent and mortgage payment forgiveness for the duration of the coronavirus pandemic. As Congress begins to mull the fourth installment of economic aid, Omar’s proposal would be on the table.
At the same time, community leaders across the country, including New York City and Seattle, are designating May 1, when rent comes due, as Rent Strike Day, encouraging struggling tenants not to pay in a coordinated demand for economic assistance.
Home selling
Metros with sizable coronavirus outbreaks per capita have seen fewer new listings come online, according to a reltor.com report. In late April, though, the weekly declines in newly available stock decelerated.
“That is one indication that maybe sellers will come back to market or at least the decline will not grow,” says realtor.com Chief Economist Danielle Hale. “The situation just continues to evolve, but as states start to open we could see that as a sign that people have more confidence and decide to go ahead and sell the home.”
Prices and inventory
The pandemic-induced shortage of inventory could only compound the lack of affordable housing that has plagued the industry for years since the Great Recession economic recovery. It would also continue to push up the price of homes.
“I think given the inventory shortage prices will still rise on the affordable homes and mid-priced homes,” says Lawrence Yun, chief economist at the National Association of Realtors. He adds that prices would likely only fall in the luxury segment.
Sellers also seem unwilling to negotiate concessions or reduce prices amid the pandemic for several reasons, says Hale. Those who are now entering the market are setting realistic asking prices. Others are bracing to ride out the uncertainty, eschewing a quick sale. Yet others are beginning to consider below-ask offers that they would have rejected a year ago.
“There are lots of potential explanations why we do see a slightly lower share of price reductions but it’s still early in the season,” Hale says. “It could certainly change week to week.”
What to watch for
“We need more listings to come to the market,” says Yun. “What I will be looking for in May is whether people are becoming comfortable with social distancing protocols for real estate transactions and if listings will begin to rise as a result.”
Home Buying
According to a recent Gallup poll, only half of Americans believe it is a good time to purchase a home, charting a record low and a slump of 10% compared to a year ago.
“Surveys suggest that buyers are a bit hesitant to get into the market right now,” says Hale, adding that home shoppers’ sentiment in May would depend on the progression of COVID-19.
Access to mortgages
Many lenders have now tightened their mortgage application requirements – asking for higher credit scores and larger down payments than before – to safeguard liquidity, which has shunned some homebuyers from the market in a time when interest rates have remained at record low levels.
The recent announcement that the government-sponsored enterprises Fannie Mae and Freddie Mac will buy mortgages in forbearance, however, could incentivize some servicers to take on more new home loans.
“But lenders, so far, at least, have been a bit cautious,” said Hale. “Borrowers may find it challenging to get a mortgage if they are able to find a property that works for them.”
What to watch for
“You will need both buyers and sellers to return to the housing market in order to get back to some semblance of normalcy later into the spring and summer,” says Hale, adding that in addition to inventory and prices, a key metric to watch is the time abodes spend on the market.
“That’ll give you an indication of whether buyers are coming in and deciding to buy properties,” she says.