Predictions for the 2021 Rental Market

Many renters have transitioned into homeownership during the pandemic, and rental demand and prices are dropping in major cities like New York and San Francisco, ApartmentList reports. “The pandemic is likely to change the expectations and behaviors of renters for an extended period, as people grew accustomed to conducting virtual real estate tours and finalizing leases and other financial transactions at home so they could easily social distance,” ApartmentList notes in a new report that looks at rental trends heading into 2021. Among the trends the online rental marketplace expects to dominate in the new year:

Rental prices to flatten for first half of year. Prices for apartments will likely stabilize during the first half of 2021, reflecting the still-high number of Americans who have lost work due to business shutdowns because of the pandemic. “Overall, multifamily markets have remained tight from an occupancy perspective, even as rent growth has been weak to negative as operators focus on renewals,” Brad Dillman, chief economist at multifamily investment and management firm Cortland, told ApartmentList. “As a result of this resiliency, we expect rent pressures to rebound in the second half of next year. This rebound appears sustainable given the relative strength of the employment recovery as it, in turn, is likely to slow.” Rental prices likely will be weakest in dense urban areas, while suburban sunbelt areas likely will see small increases in rents.

Affordable housing demand will grow. “Given the undersupply of housing, estimated by ourselves and others, it is possible the country will see a renewed focus on housing affordability narratives as rent growth pressures resume next year,” Dillman told ApartmentList. Also, new construction is facing delays. Evictions likely will grow in the first and second quarter of next year as the national moratorium, which Congress is likely to extend through January, expires. Demand for affordable housing will likely grow as more people look for one-bedroom apartments in suburban areas, predicts Freddie Zamani, CEO of EcoSmart Builders, a construction company.

Remote work influences addresses. As remote work grows more commonplace, Americans may be more enticed to move. “We don’t anticipate job seekers placing as much emphasis on location as it relates to their commute as in years past,” Dillman says. But as cities may lose residents, rental prices may fall sharply as a result. Americans will “slowly but surely” be attracted to city life once again as prices moderate, the report notes.

Tout those smart-home features in listings. More than a third of young Americans say they’re more interested in smart-home tech for safety and security, energy efficiency, and entertainment and relaxation since the COVID-19 pandemic, according to a new survey from realtor.com®.

Overall, a quarter of Americans say they’re more interested in smart-home technology now that they’re spending more time at home. Forty-one percent of smart-home technology owners say they’ve bought at least one device since the coronavirus outbreak began. The interest has been highest among 18- to 34-year-olds, according to realtor.com® and YouGov, which surveyed more than 2,000 Americans earlier this month to learn their thoughts on smart-home technology.

“The survey results show that many Americans, especially younger people, are leveraging smart-home technologies to enhance their quality of life, even more so now that most of us reshaped our homes into live, work, learn, and play spaces,” said George Ratiu, realtor.com®’s senior economist. “In a year defined by a global pandemic, and fraught with civil unrest and economic volatility, it’s not surprising that people are prioritizing the safety and security of their home, their finances, and having a comfortable place to relax and unwind.”

Indeed, security-related smart-home products topped consumers’ lists. Survey respondents said smart-home features that could even make new homes more desirable include a smart doorbell with a camera and a high-tech security system. About 21% of respondents also said they’d be willing to pay more for a home with a high-tech security system or a smart doorbell with a camera.

Some additional highlights from the survey:

• When respondents were asked to select just one smart-home feature to add to their home, the majority chose a high-tech security system.
• More than half—or 57%—of all consumers surveyed and 61% of those 18- to 34-year-olds already own some smart home technology. The most common products owned are smart TVs, smart-home speakers, smart doorbells, robot vacuums, and connected climate control systems and smart thermostats.
• On energy efficiency preferences, consumers said a feature that would make a new home more desirable would be solar roof tiles, a home battery pack to store solar energy, and standalone solar panels.
• On entertainment, 26% of consumers said a high-tech home theater and 18% said TVs that pop up out of dressers or drop down from the ceiling are features they say would make a new home more desirable.

This week marked the 15th record low for mortgage rates this year. The 30-year fixed-rate mortgage dipped further to an average of 2.67%, the lowest rate ever recorded by Freddie Mac, with records dating back to 1971.

“The housing market continues to surge higher and support an otherwise stagnant economy that has lost momentum in the last couple of months,” said Sam Khater, Freddie Mac’s chief economist. “Mortgage rates are at record lows and pushing many prospective home buyers off the sidelines and into the market. Homebuyer sentiment is sanguine and purchase demand shows no real signs of waning at all heading into next year.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 17:

• 30-year fixed-rate mortgages: averaged 2.67%, with an average 0.7 point, falling from last week’s 2.71% average. This time last year, 30-year rates averaged 3.73%.
• 15-year fixed-rate mortgages: averaged 2.21%, with an average 0.6 point, falling from last week’s 2.26%. A year ago, 15-year rates averaged 3.19%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.79%, with an average 0.3 point, unchanged from last week. A year ago, 5-year ARMs averaged 3.36%.

Freddie Mac reports points along with average commitment rates to better reflect the total upfront upmost of obtaining a mortgage.

Fewer investors are taking on home flips during the pandemic. But many of those who’ve stayed with it are seeing profits rise.

The number of home flips dropped again in the third quarter, comprising only 5.1% of all home sales, ATTOM Data Solutions reports. Home flipping reflects a transaction in which the property is bought and sold within 12 months.

The gross profit on a typical home flip nationwide—which is the difference between the median sales price and the median paid by investors—increased to $73,766, the highest amount since at least 2000, ATTOM Data Solutions reports. That also is up significantly from $61,800 in gross profits recorded a year ago.

The markets seeing some of the highest home flipping profits in the third quarter compared to a year ago were Brownsville, Texas (return on investment up 182.9%); Austin, Texas (up 176.4%); Waco, Texas (up 157.4%); and Springfield, Mo. (up 145.3%), according to the report.

“Home-flipping again generated higher profits on less transactions across the United States in the third quarter of 2020 as investors continue to make more money on a declining number of deals,” says Todd Teta, chief product officer at ATTOM Data Solutions. “This all happened in the context of the pandemic, which has created unusual circumstances for the housing market to thrive, and that has included the home-flipping business. Too much is uncertain these days to say whether the latest trends will continue. But for now, the prospects continue looking up for home flipping after a period when they were trending the opposite way.”

Home flipping as a portion of sales was down in the third quarter in 93% of the 159 metro markets that ATTOM tracks. The largest quarterly decreases in the home flipping rate nationwide occurred in Killeen, Texas (where the rate was down 44.5%); Savannah, Ga. (down 43%); York, Pa. (down 42%); and Greeley, Colo. (down 41.5%).

On the other hand, the largest increases in home-flipping rates occurred in Davenport, Iowa (up 18.5%); Hilton Head, S.C. (up 16.8%); Scranton, Pa. (up 12.2%); Amarillo, Texas (up 10.9%); and Kalamazoo, Mich. (up 7.7%).

Some additional highlights from ATTOM Data Solutions’ latest report:

• Homes flipped in the third quarter were sold for a median price of $240,000. The median investor purchase price was $166,234.
• The highest home flipping profits measured in dollars tended to mainly be in the West and Northeast, led by San Jose, Calif.; Ventura, Calif; Los Angeles, Calif.; and San Francisco.
• About 57% of homes flipped in the third quarter were purchased with all cash, up from 51% a year earlier.
• Home flippers who sold in the third quarter took an average of 192 days to complete the transaction, which is the highest level since the third quarter of 2003, ATTOM Data Solutions reports.

The stress of 2020 is causing an overhaul in home design. For example, open floor plans are now being considered too open as households seek privacy for work and school while everyone is at home. As a result, home offices are growing in demand in buyers’ home search.

Real estate and design experts recently shared with realtor.com® some of the biggest home design trends likely in the new year, including:

Separated spaces.

Open floor plans are getting divided up. Homeowners are looking to create nooks or pockets for Zoom calls, lounging, exercising, and e-learning, design experts say. “New buyers are asking for homes with more separation, as sometimes multigenerational families share a home and need space and privacy amongst themselves,” Yorgos Tsibiridis, a broker at Douglas Elliman in the Hamptons, told realtor.com®.

Biophilic design.

Homeowners are craving nature in the pandemic and are bringing in more houseplants and indoor gardens. “During the pandemic when it was difficult for some to get their daily dose of nature, people started bringing the outdoors in with natural materials in their home,” Julie Busby, founder of the Busby Group at Compass in Chicago, told realtor.com®.

Wood-grain elements in the kitchen.

Wood-grain kitchen cabinets and counters are trending, offering a touch of organic and natural materials. Bill Darcy, CEO of the National Kitchen & Bath Association, told realtor.com® this may be another sign of tying home design elements to nature. Instead of all-white kitchens or painted cabinets, more homeowners are adding in wood-grain cabinets and wood countertops on to their kitchen islands, designers say.

Outdoor solitude.

Fireplaces, fire pits, patios and decks, screened-in porches, and outdoor kitchens have all gained popularity during the pandemic. The outdoor kitchen is particularly trending, as homeowners add outdoor refrigerators and dining areas in their backyards or create a more elaborate space that includes a fully equipped kitchen outside with a stovetop and appliances.

Bathrooms get smarter.

Smart home innovations are increasingly entering the bathroom.

“Touchless appliances, including motion sensors for lighting, and smart temperature control for bathroom floors will be more popular in the next year,” Darcy predicted to realtor.com®.

The work-from-home trend may be translating into a need-a-new-home trend. The COVID-19 pandemic has prompted more people to work remotely, and as more people hunker down at home, they’re looking at real estate for a move.

Forty-five percent of consumers recently surveyed by Homes.com say they would move if given the chance to continue working remotely. Twenty percent of respondents also indicated that remote work was the reason why they moved within the last year. Homes.com surveyed more than 1,000 consumers and 600 real estate professionals to learn about moving patterns fueled by the pandemic.

“The surge in the work-from-home population has rewritten the playbook for many homebuying and rental decisions, from when and where to relocate, to what people are looking for in their next residence,” says David Mele, Homes.com president. “That, in turn, is prompting changes for real estate professionals, many of whom are expanding their market area to better serve clients who are moving farther than before. If working from home becomes standard operating procedure for many companies, as predicted, these changes will be with us for years to come.”

More Americans are no longer bound to lengthy commutes to city centers as remote work grows. That is freeing them to choose new locations to live, as well. Thirty-two percent of real estate professionals surveyed reported an uptick in city-to-suburb moves, and 23% said they were fielding fewer requests for housing near public transportation or highways.

Instead, more consumers want to move farther out. Forty percent of consumer respondents said they have moved or plan to move more than 100 miles away, and half of those respondents are moving more than 500 miles away.

The pandemic is prompting moves that consumers hadn’t planned for either. One out of three consumers who moved in the last 12 months said they did not plan to move prior to the COVID-19 outbreak. About a quarter of those who’ve relocated or plan to do so soon say their decision to move is being sparked by a change in their job situation.

Desired home features are also changing in the pandemic. The most common preferences real estate agents say they’re noticing are requests for home offices, larger square footage, outdoor recreational spaces (such as pools, hot tubs, and decks), and upgraded kitchens.