The gateway markets have been struggling as people left for more affordable areas during the pandemic.
However, the bleeding may soon stop. In a new report, Freddie Mac Multifamily sees potential for positive growth in the gateway markets by the end of 2021.
Data from the first quarter of 2021 shows that rents are continuing to decline annually. However, Freddie Mac says that monthly data shows they are starting an upward turn.
“The metros with the most negative 2021 rent projections are starting to see some rent growth take hold during the second quarter,” Freddie Mac said in the report.
The bad news: The markets with substantial rent declines in 2020 could take years to fully recover, the GSE said.
While rent levels are exceeding year-end 2019 levels in most markets, the national average rent level is not expected to exceed the pre-pandemic level by the end of 2021. Freddie Mac attributes this to the size of the markets that saw the steepest rent declines, including New York, the Bay Area, Boston, Los Angeles and Chicago.
The rent declines in these markets were extreme. For example, monthly rent is down over $700, $550 and $500 in San Francisco, New York and San Jose, respectively, from peak to trough,” according to Freddie Mac.
Overall, rent growth forecasts for 2021 are better than in 2020. In 2021, Freddie Mac projects that no market will decline more than -5%.
In 2020, approximately one-quarter of markets experienced declines between -2.5% and 0%. In 2021, it projects that less than 10% of markets will see any rent decline. While roughly half of all markets experienced rent growth during 2020, Freddie Mac expects over 90% of markets to achieve positive rent growth this year and that more than half of markets should see rent growth between 1% and 3%. Nineteen markets are projected to have rent growth of 3% or higher.