The COVID-19 pandemic and the economy’s recovery from said pandemic have created major shifts in real estate. As a real estate investor, renter, or home buyer — it is important to look at the present and also ahead.
This blog will cover the real estate rental and sales trends for Q3 of 2021. Additionally, we’ll also be revealing the projections for the real estate industry in the upcoming 2022 year.
General State of the Rental Market
As the pandemic slowly ends, our economy is seeing signs of rapid recovery. The combination of federal stimulus, return to work routines, and an influx of demand for vacation homes are the primary driving factors to this recovery.
Renting decreased dramatically during the start and height of the COVID-19 pandemic, but rising house prices are forcing more people to rent. As such, the rental and property management sectors are beginning to look more favorable again.
It is important to note that the forecast predictions from 2019 for the last 2 years and future years have been withdrawn. While we are recovering from the pandemic, it is uncontested that the pandemic has changed many things in life — which includes the rental market. Instead, we must call on new forecasts for future years.
Rent Rises Create Positive Investment Returns
Not the best for people looking to live somewhere, but rent rises are creating positive investment returns for investors. In Q3, the national rent is still increasing but increasing at a slower rate than Q2. According to Apartment List’s National Rent Report, rents grew by 0.8 percent this October, which is the third month in a row that rent rise rates have decreased nationally. In July of Q2, the rent rate increased at a peak of 2.6 percent.
However, it is important to note that October is a month that normally sees rent prices declining even before the pandemic. Rents fell by an average of 0.3 percent from September to October in the years of 2017-2019.
So, despite growth having been slowed, rent growth is continuing to exceed its pre-pandemic trend. To sum up this trend, rent growth is occurring virtually everywhere — but the growth itself has started to cool.
Renting’s Target Demographic Widens
According to PewResearch, younger people — those under 35 — and people with single incomes are far more likely to rent than any other group. In general, renters skew towards the lower end of income and wealth distributions according to data from the Federal Reserve’s 2019 Survey of Consumer Finance, which is the last time the Federal Reserve had reliable data since the pandemic began.
It is expected that the target demographic for renting will widen in the next few years. Despite federal relief, the pandemic has put many people in tight financial circumstances. Individuals or families who had the financial assets to purchase a home have likely done so already. With a limited supply of houses, frequent bidding wars, and higher house prices in general, more people are going to opt to rent. Even though rent prices are rising, it may be the only viable option for greater segments of the population at this current moment.
General State of the Housing And Sales Market
According to CoreLogic’s latest report, home prices nationwide grew by a whopping 17.2 percent in June of 2021 compared to June 2020. States like Idaho, Arizona, and Utah saw year-to-year house price changes closer to 30 percent. But, this housing price growth isn’t expected to last.
In Q3 of 2021, just like with the rental market, rebalancing is occurring within the housing and sales market. There is a steady rate of transactions, a higher number of houses on the market (though not as prevalent as before the pandemic), and the steep house prices are growing more moderately now.
According to the National Association of Realtors, unsold homes rose 3.3 percent to 1.25 million homes from May to June this year. In October, the number of unsold homes is expected to be moderately higher than that of June.
Home Buyers Are Becoming More Risk-Averse
During the height of the pandemic, those that were desperate for houses pulled out all the stops to outbid the competition. Individuals were indulging in all sorts of financially risky tactics such as forgoing contingencies, getting high-interest loans, and/or tapping into retirement savings.
This approach was favorable to investors who could sell homes in literal minutes, but this all-in buyer approach is not going to last. Part of the reason home buyers are becoming more risk-averse is that there’s no longer a need to desperately rush into owning a home. Inventory is beginning to ramp up and house prices are starting to taper, allowing buyers time to think over their decisions.
A Shift to Second-Tier Cities
According to FinancesOnline, both real estate investors and buyers are shifting towards second-tier cities because of lower competition and prices. Since 2018, there have been trends that suggest a movement towards second-tier cities, the pandemic has made these trends stronger. Again, according to FinancesOnline, one survey indicated that 15 to 28 percent of large city residents want to move out of the city. As second-tier cities grow, it may be in an investor’s or buyer’s best interest to purchase property there early.
Real Estate Projections For 2022
The historic runs in housing and renting price increases during the pandemic are expected to cool off in 2022. Researchers from Freddie Mac suggest house price growth of 16.9 percent in 2021, which will decrease to 7 percent in 2022. Buyers are discouraged from homebuying due to the increased prices, while investors may be able to take advantage of this continued growth. For the next few years, renting will reach a larger target demographic but will eventually taper off back to normal.
To Wrap Up
Whether you’re an investor, homeowner, or potential homeowner — keep Intempus in mind! We’re a one-stop-shop real estate company that specializes in real estate asset management, acquisitions, and relationships. Click the contact page to send us a message or give us a quick ring at (408) – 748 – 7592. We’re excited to hear from you!