Let’s face the facts, 2020 has been a year of adjustments – to the way we do business and live life in general. Predictions for the real estate industry signaled it would be the best year ever, but the data shows a different story. What did we learn about real estate in 2020, and what should we look for in 2021?
Here are 4 realities in real estate in 2020.
Technology is king—
With social distancing and lockdowns, property owners who need to buy, sell, or rent a house have relied on technology. Apps and virtual tours have become increasingly user-friendly, making it safe and convenient for investors to acquire property virtually. The downside? Constraints on in-person contact have made it harder to find small repair issues. This means any buyer must count on the home inspector to confirm that home systems like plumbing, HVAC, and electrical are in good working order.
As real estate agents, brokers, and property managers moved more of their operations to a virtual model, they’ve had to plan more carefully. Virtual open houses and video showings helped keep buying and selling activity going. They’ve relied on online rent evaluation tools like Rentometer, along with Google Maps, to make sure their pricing for a rental property lines up with the market, although input from local professionals remains an essential source of market intelligence. Real estate in many parts of the country has stabilized through all the upheaval and uncertainty. In some areas, performance has even matched up with 2019 predictions for a good year.
Relationships are more important than ever—
Even without the ability to network in person, referrals and word-of-mouth intelligence remain a driving force for real estate professionals. Investors have had deals come their way because they helped someone in the past. Real estate agents who remained diligent about following up and reaching out to previous clients found their focus on relationships led to a strong year.
Good data is queen—
Technology may be king, but it needs reliable and useful data to deliver its full potential. Users now have tools to verify data among a few different sources to trust its accuracy. Headlines about rental rates on the national news do not necessarily reflect what’s happening in a small town. Savvy landlords and property managers use online tools to determine rent ranges and then ask local professionals to corroborate the data.
For example, at Rentometer, our regular review of year-over-year stats for four metro areas revealed that while both actual rent payments and year-over-year amounts fell between April and September this year, there have been periods of recovery. The October graph for Washington D.C. shows current rental rates as high as in February and more robust than both 2018 and 2019. Good data matters when making decisions about real estate in 2020.
Bigger is better—
For a long time, industry predictions had millennials flocking into tiny houses or pursuing co-living arrangements. With people now working remotely for the foreseeable future, space has once again become a necessity. People are moving into bigger apartments and buying bigger homes to create the space they need for work and life. As the largest demographic taking out mortgages in 2020, millennials remain a potent market force.
As is so often the case, the more things change, the more they stay the same —2020’s unpredictability has put plans to buy or sell on hold for many people. But ask any real estate agent, and they’ll tell you buyers continue to buy even though inventory is low. This demand has caused home prices in many markets to increase, and rental rates have echoed the increase. People always need a place to live; many of those who had plans to move kept those plans. Others who planned to stay put in their house or apartment to save more for a few years have been pushed to action because their remote work requirements call for more space or amenities.
What does the data picture show at the end of 2020?
At Rentometer, we are data-driven. If you want to quantify rental rates, analyze rents for a neighborhood and use that data to understand what you should be charging, we’ve got you covered. Landlords, property managers, and owners who have their boots on the ground are the best sources to tell you how market data plays out in any given area.
Many real estate agents, brokers, and economists are trying to determine trends for 2021. With that in mind, here’s a look at year-over-year data for 14 metro areas (Philadelphia, Chicago, Los Angeles, San Francisco, Miami, Milwaukee, Portland, Denver, Phoenix, Minneapolis, Las Vegas, Seattle, Atlanta, and Houston), to see what’s currently going on in rental markets, assembling median rental rate data for the period December 1, 2019 – December 1, 2020.
One-bedroom rental rates
In 57% of the metro areas, the 2020 rates were lower than the 2019 rates. San Francisco took the biggest hit. By contrast, Miami, Milwaukee, Phoenix, Las Vegas, Atlanta, and Houston saw stable rates; Miami had the best year-over-year performance.
Two-bedroom rental rates
For two-bedroom units, only 35% of these metro areas experienced 2020 rates lower than rates charged in 2019. San Francisco was once again hit the hardest. For the markets that saw growth in actual rental rates, Miami came out on top again, with an average increase of $203 in December.
Three bedroom rental rates
For most of these 14 metro areas, rates for three-bedroom units remained favorable, and average rents increased overall, except for San Francisco, where rates were negative. In comparison, Miami enjoyed the largest increase for three-bedroom units; December 2020 rates are $769 higher than December 2019.
Rentometer Pro City Analysis: Miami
So what did we learn about real estate in 2020?
For investors, real estate remains resilient. Even the bounce-back after the crash of 2008-2009 has nothing on this year’s bounce-back in most areas. Real estate has repeatedly proven that it may fluctuate and adjust in the short term but remain strong as long as there’s a demand for housing.
For many buyers and sellers, moving might still be in your best interest, especially if you need more space or want to capitalize on your home’s appreciation in an active market. If you are not already working with a trusted real estate agent, ask friends and colleagues for a recommendation. In the meantime, take advantage of virtual tours and online apps to aid your property search. With so many seller’s markets in evidence around the country, be prepared to pay inflated prices unless you move to a more affordable area.