This past year and a half hasn’t been easy for most of us. In the tumultuous times that befell us in this time, almost every aspect of our lives has been upturned and completely restructured, leaving us scrambling to adapt at risk of being left behind. Our work lives were turned upside down, as were our personal lives.
The world of real estate wasn’t left unscathed; throughout the country, local and regional real estate markets were severely affected by the pandemic and its associated repercussions. With millions of households in financial distress and countless more experiencing unexpected health and wellness issues, it’s really no surprise that the real estate market has been all ups and downs this past year.
Regardless of this, 2020 is over and 2021 is here. The real estate market is on its way back, and there are plenty of signs that this new year is going to usher in some pretty big changes. The market has shifted substantially, and this year is bound to see the real estate market go through a drastic paradigm shift. So how are things going to change?
As anyone with even a cursory knowledge of real estate is aware, rentals are an unavoidable and essential feature of the real estate landscape. Sure, there are plenty of homebuyers looking to buy property, but for those who can’t or won’t buy, the only other option is a rental. Renters and landlords have a substantial impact on real estate prices, and their presence is a determining factor in many local and regional markets.
In areas where large numbers of renters are present, real estate prices are likely to be higher, as a result of the increased demand for housing that their presence precludes. In areas with fewer renters, real estate prices may fall as a result of their absence. In general, large communities of renters impact property owners positively.
Cities where the rental market represents a large percentage of residents sometimes suffer from a degree of fluctuation and instability, as heightened unemployment or other unrelated factors can lead to greater numbers of vacant rentals and thus lower real estate prices. As a result of this uncertainty, some cities incentivize the purchase of homes and the development of property.
Now that you have a better idea of how the rental market fits into the real estate market as a whole, we’re going to be taking a look at some of the most recent rental trends, specifically those that occurred as a result of the recent pandemic. The effects of the pandemic have been mixed, but landlords and tenants alike have been hit hard by the repercussions of COVID-19. Let’s get started!
One of the most noticeable trends in the rental market is an overall decrease in demand for rentals, and an increase in contracts terminated by tenants. Although some of these can be accounted for as a result of the financial instability that the pandemic introduced into many homes, the primary reasons are a bit more complex.
The first and most obvious reason for this trend is increased corporate awareness of the benefits and viability of working from home. While work-from-home jobs have existed for some time, the trend towards fully remote and hybrid work schedules has made it abundantly clear that employees are almost always as or more efficient when working from home.
This trend towards working from home has led to an interesting result in the real estate market. As corporate management gradually becomes more comfortable with the idea of allowing their employees to work remotely, the need for large numbers of white collar workers to live in close proximity to their place of work is becoming less and less of a factor.
As a result of this, many employees are leaving their metropolitan homes and the associated cost of living for areas in which their salaries allow them superior quality of life. For those who have no other attachment to their city besides their professional obligations, the prospect of relocating to a more rural, inexpensive location is exceptionally attractive.
Another of the effects that the pandemic has had on the real estate market are the gradually decreasing rent prices in many large cities such as Chicago, Miami and Los Angeles. Although a huge chunk of the real estate market in these cities is attributable to rental properties, rent prices have been slowly but steadily getting lower since the beginning of the pandemic.
So why is this the case? Well, there are several reasons. One reason we’ve already discussed is the trend towards outward expansion seen in many densely populated areas, but another explanation is the shrinking number of renters who are able to make rent in high priced rental properties. For households such as these, high-range rental properties are not an option.
Obviously these households have to live somewhere, leaving mid- and low-price rentals as the only remaining option. With more and more people facing difficult financial circumstances, the demand for these mid- and low-priced properties is steadily increasing, making it much easier to find tenants when you own a property that fits these criteria.
This is good news for renters, of course, but landlords who own high-priced central or luxury apartments may not be so pleased by this trend. In order to keep their properties occupied, these landlords may be forced to reduce the monthly rent price or shift their business model towards other methods.
In addition to the previous two effects of the pandemic we discussed, another unfortunate side effect is the increased number of evictions we’ve witnessed in the past months as moratoriums on evictions have been lifted and tenants are forced to face months of unpaid rent. While some landlords are more understanding than others, there isn’t a lot of compassion to be had for tenants who can’t make rent.
One of the unintentional repercussions of these evictions is the effect it has on both local rental markets and the property values in those very same markets. As the populace and revenue of a community begin to desert the area, rent prices and property values can rapidly plummet as the neighborhood rapidly deteriorates economically and socially.
In many communities, this domino effect has had a severely negative impact on residents, business owners and landlords alike. In a self-perpetuating cycle, this phenomenon continues to affect the lives and businesses of locals, turning many once beautiful communities into hollow shadows of what they once were.
To shift focus back to how this affects the rental market in 2021, landlords can take comfort in the fact that they have the benefit of a captive target demographic. As income inequality grows greater every year, most young adults have little chance of ever being able to buy a home, leaving rentals as the only remaining option.
After hearing this, you may be wondering whether or not now is a good time to invest in rental properties and become a full time landlord. The market is in a unique position at the moment, and depending on where you live and what your budget is, this might be a good idea! There are innumerable factors to consider when making this decision, and we can’t possibly address all of them, but we’ll say this: do your own research before you come to a conclusion!
If you’re seriously considering this possibility, one great way to get a better idea as to whether or not this is a good idea is to find a real estate agent in your area and see what they have to say on the matter. They’ll share a treasure trove of information about your local rental market, and help you figure out whether or not this course of action is a good idea. You’ll still have to do your research on your own as well, but having an established professional weigh in will help!
With the events of the last year behind us, there’s no question that we’re all ready for a change of scenery. For those of us who are invested in the rental industry and those of us who would like to be, these trends should disrupt the existing dynamic to a great extent, providing us with plenty to think about over the months to come. We wish you the best of luck!