Every year, we at Real Property Management national headquarters offer landlords and rental property owners our annual economic outlook. We gather key data about past and present real estate market indicators to create a series of predictions about the coming year. In 2020, many of our predictions were remarkably accurate despite the unprecedented challenges of a pandemic and an economic downturn. Despite all the surprises the past year has brought, our economic outlook predictions continue to be a telling guide to help rental property investors navigate a frequently shifting housing market.
In what follows, we present our economic outlook for 2021. Despite a significant degree of lingering uncertainty that remains after a tumultuous 2020, the outlook for the 2021 single-family rental market remains largely hopeful. There is little doubt that the COVID-19 pandemic has affected real estate markets on an unprecedented scale. The disruptions to the rental market have not only made it difficult to predict what the coming year may look like for property owners and investors but have also skewed many of the data points and metrics that investors typically rely on to assess current market conditions. Still, economists and industry experts alike are expressing confidence that the single-family rental market will continue a generally upward trend in most major markets, eventually returning to conditions very similar to those experienced at the end of 2019.
Here are Real Property Management’s five predictions for 2021.
Home Prices Will See Strong Growth
The current housing market is incredibly strong, a trend that is expected to continue through 2021. Current projections estimate home price growth just below 5%, driven by low housing inventory, high demand for single-family properties, and low interest rates. Such conditions may result in an intensely competitive market for property investors in the coming year. At the same time, far-reaching shifts in how and where people work are mirrored in the relative growth or decline of individual markets. With a large percentage of the population working from home, there is a new desire for more space and homes in areas that offer a lower cost of living. The result is that many smaller markets are seeing big surges in home price increases, while some big cities are in decline. This trend will likely continue for as long as the pandemic continues to impact every facet of daily life.
Mortgage Rates Will Stay Low
Historically low interest rates continue to drive strong demand for single-family properties and will likely do so through the end of 2021. At the end of 2020, mortgage rates for a 30-year fixed-rate loan were at 2.95%, down from 3.9% at the end of 2019. Such low rates no doubt contributed to the strength of the housing market despite 2020’s economic downturn, and all indicators point to a continuation of that trend. At the same time, such low rates have caused a sudden increase in the demand for mortgage refinances as well as new loans. This, combined with the anticipation of a sudden burst of foreclosure activity in the first part of 2021, is likely to result in tighter lending standards for the coming year and may make obtaining financing more difficult.
Inventory Levels Will Be Unusually Tight
Economic uncertainty and concern about the spread of COVID-19 have had lasting effects on the number of available homes for sale, as well as on new residential construction. Depending on how long these conditions last into 2021, it could result in unusually low inventory levels in many markets. According to the U.S. Census Bureau, new construction fell 14% between the beginning of 2020 to September. While new residential starts went up significantly in the fourth quarter of 2020, there is a strong likelihood that residential construction will not be able to keep up with buyer demand in 2021. There may be a sudden influx of foreclosed properties in the first part of 2021, which may temporarily help address inventory issues. While national foreclosure levels were unusually low in 2020, these numbers do not consider mortgage forbearance programs and other moratoria put in place by federal, state, and local governments. While the sudden burst of foreclosures may create opportunities for investors, as a whole, we expect that finding good bargains on rental properties will continue to be a challenge in 2021.
Rental Rates Will Continue to Rise – in Some Markets
Demand for single-family rental homes is likely to remain a strong feature of the 2021 housing market. But there is a great deal of uncertainty over how much and how long the pandemic – and the related economic fallout – will affect rental rates. Still, an analysis of national rent prices from 2018 to 2020 shows slow but steady increases near 2.5% year-over-year, a trend that seems likely to continue. At the same time, however, rents are likely to rise faster in areas that lie outside of large metro areas, while rents in urban centers may flatten or even fall. Still, these shifts may be temporary, and by the end of 2021, most experts predict that rental rates will be on the rise nationwide once again.
Vacancy Rates Will Fluctuate before Regaining Equilibrium
One of the most consistent predictions that experts have made is that the number of evictions nationwide is expected to increase sharply at the beginning of 2021 – or whenever the eviction moratorium policies of 2020 are allowed to expire. While there are clear indicators that multifamily properties and urban areas will be hit particularly hard by high vacancies, the same indicators show that single-family vacancy rates will not be impacted as severely. While the national average rental vacancy rate was officially 6.4% at the end of 2020, at the same time vacancies were already spiking in some metro areas. In 2021, vacancy rates are likely to vary widely from location to location and will almost certainly change dramatically in the short term. In the second half of the year, however, some experts predict that vacancy rates will slowly return to levels similar to those at the end of 2019 – approximately 6.8% nationally.
The strength and resilience of the housing market throughout the turmoil of 2020 has led experts to express hope for a quick return to favorable conditions for landlords and rental property owners. While making predictions in the face of an ongoing pandemic, political unrest, an economic recession, and record unemployment will always be a bit of a gamble, there is little evidence to suggest that the coming year will see a housing crash of any kind. Instead, all signs point to the single-family rental market being uniquely positioned to weather the coming year with far more stability than most sectors of the economy.
Creating a successful investment strategy for the coming year will no doubt be a challenge. But using the best information available, Real Property Management can help you meet that challenge as you protect and grow your property investments. In addition to our market predictions, we also offer rental property owners and landlords a range of investment tools and reports that can give you the competitive edge you’ll need to succeed in today’s market. Please contact your closest independently owned and operated Real Property Management office to learn more about what they can offer you this year.
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