Evictions plummeted even in cities without eviction bans.

You probably read over the last six months about a looming evictions crisis of historic scale. It’s been described as a “tsunami” and an “avalanche.” Some forecasters predicted as many to 30 to 40 million renters could be evicted.

What happened? Not much—and that’s wonderful news. Americans will likely experience a record low number of evictions in 2020. Eviction filings since COVID-19 hit in mid-March have plunged 67% from normal levels in the 17 markets tracked by Princeton’s Eviction Lab. Evictions plummeted even in cities without eviction bans. And all reliable indicators continue to show renters are (so far) paying their monthly rent at near-normal levels. This is good news not only because millions of renters haven’t been displaced as feared, but also because accurate numbers lead to more targeted, more affordable policy solutions that, in turn, increase the odds of lawmakers finally approving much-needed direct aid for renters truly in need.

How did forecasters get it so wrong?

It’s easy to credit a patchwork of local and state eviction moratoriums—followed by the CDC’s national ban enacted in September. But our extensive analysis reveals that moratoriums are just one of many critical factors limiting evictions in 2020. Some of the forecasters who made headlines for doomsday predictions chose to ignore or give scant attention to critical factors helping keep evictions low—high rent collection rates, sympathetic property owners working overtime to accommodate distressed renters, and backed-up court systems.
Interestingly, dire headlines typically trace back to just three forecasters with peripheral connections to real estate. At the same time, media reports frequently downplayed studies from real estate researchers showing significantly less distress— including those from RealPage, the Mortgage Bankers Association, and the Urban Institute.

One of the most widely cited eviction prognosticators is Stout, a consulting firm that has done several studies on evictions for different organizations. Stout forecasted about 11 million potential eviction filings over a four-month period beginning May 13, according to the consultant’s website, among the 16.2 million households “at risk of eviction.” Stout also predicted 2 million eviction filings in both August and September – meaning 4x the annual number in just a two-month period. Both estimates appear to have overshot by a huge margin. Stout remains very bullish on evictions. In a September report produced for the National Council of State Housing Agencies, Stout wrote: “Stout estimates that by January 2021, up to 8.4 million renter households, which include 20.1 million individual renters, could experience an eviction filing.” That outlook appears highly unlikely.

Another forecast that grabbed headlines came from the Aspen Institute, a think tank, in conjunction with the COVID-19 Eviction Defense Project. This group estimated in June that “19 to 23 million, or one in five of the 110 million Americans who live in renter households, are at risk of eviction by September 30, 2020.” While there is no uniform measure for “at risk,” there is plenty of evidence that actual evictions through September ended up a small fraction of Aspen’s forecast. Curiously, even as the economy showed signs of gradual recovery over the summer, Aspen doubled down in a follow-up report in August, estimating that “30–40 million people in America could be at risk of eviction in the next several months … If conditions do not change, 29-43% of renter households could be at risk of eviction by the end of the year.” That scenario appears nearly impossible to pan out.
A third forecaster, Amherst, opined in May the possibility of evictions registering “in excess of the levels we saw in the wake of the Great Recession.” That view has, so far, proven incorrect.

How did forecasters err so dramatically? A study of methodologies and additional datasets reveals multiple explanations. Most of the dire forecasts inexplicably downplayed or ignored a number of major factors that have kept evictions low: relatively normal rent collection rates, widespread eviction moratoriums, a delayed legal system, and a sympathetic base of property owners providing extensive measures to give renters unprecedented flexibility.

Instead, some “tsunami” forecasters leveraged questionable assumptions and experimental datasets. One forecaster, for example, initially assumed a 25-30% unemployment rate (roughly triple the current rate). Others relied heavily on a new Census dataset called the Household Pulse Survey, which the Census itself labels as “experimental” and discloses the risk of overstating distress due to non-response bias.

Additionally, good forecasts wisely separate newly (or additionally) distressed households from the millions challenged even prior to the pandemic, as the latter group is largely accounted for in pre-pandemic eviction baseline numbers. Failing to make that distinction can inflate eviction estimates.

Why does accuracy matter? Because as Congress continues to wrangle over relief packages, bloated price tags decrease the odds of approval for much-needed direct renter aid programs and increased funding for new affordable housing. Both are badly needed.

It’s tremendous news that evictions remain so low. But we also must acknowledge that renter distress is very real and was very real even prior to COVID-19. Evictions would be much higher this year if not for the yeoman efforts of property owners, eviction moratoriums, and—most importantly—the millions of renters paying rent every month. Right now, property owners are taking on much of the burden. But that’s unsustainable, adding more risk for an already fragile U.S. economy. Additionally, the CDC’s national eviction ban is merely a bandaid. Rent is still due when the moratorium expires, and direct renter aid programs are needed to protect both renters and property owners (most of which are small family businesses).

Defining the problem accurately allows for more precise, targeted, affordable solutions. Well-intended researchers may be unintentionally sabotaging their own cause.

 

 

Source: GlobeSt By Jay Parsons | October 05, 2020 at 06:53 AM

Rent debt improved slightly in September as the economy has continued to improve and add back jobs.

The lack of a new federal stimulus package has not had a negative impact on rent debt—back rent payments owed to landlords—since the CARES Act relief expired in July. Rent debt improves slightly in September, with 32% of renters owing back rent to landlords down from 34% in August, according to data from Apartment List. This improvement has occurred in step with economic recovery and the addition of lost jobs.

“Despite the expiration of federal stimulus provided through the CARES Act, the economy has gradually been adding back jobs, indicating that we’ve started down the path of what will likely be a drawn-out recovery,” Christopher Salviati, housing economist at Apartment List, tells GlobeSt.com. “With some Americans starting to get back to work, the rate of non-payment has not worsened. That said, the rate of missed payments remains elevated, and we find that even many of those who are able to pay their rent are making significant financial sacrifices to do so.”

While the share of rent debt among renters is improving, it is still high, with more than a third of renters owe back rent payments. “The fact that so many Americans are struggling to pay their rent is putting downward pressure on rent prices,” says Salviati. “We find that among those who say the pandemic has made them more likely to move during 2020, the most commonly cited reason is the need to find more affordable housing. Many of these renters are likely moving back in with family or friends to relieve financial pressures. High-priced markets and luxury units, in particular, are seeing a drop off in demand lead to stagnating or falling rent growth.”

Eviction moratoriums have played a role in increasing missed payments—while also decreasing the number of evictions. These protections have expired in some areas, but in others—including the state of California—eviction moratoriums have been extended through the end of the year. “Eviction moratoriums have been an important tool in maintaining housing security for those that are struggling during these unprecedented times,” says Salviati. “We haven’t seen evidence that these protections are leading to higher rates of missed payments—renters who are able to afford their rent are continuing to make payments, and in fact, many are going to great lengths to stay current on their rent in spite of the protections in place. Rent debt is likely to be an issue through the end of the year with or without the presence of eviction moratoriums.”

Rent debt isn’t only a burden for renters—who are struggling to make payments and stay in their homes during a public health crisis—but it also places a burden on landlords. Many landlords are not able to maintain ownership with decreased cash flow. “Many landlords operate on relatively thin margins and rely on complete and timely rent payments in order to pay the mortgages on their rental properties. Widespread issues with rent non-payment will certainly impact landlords as well,” says Salviati. “That said, many lenders are offering options for mortgage forbearance, which may relieve some of this pressure.
Source: GlobeSt By Kelsi Maree Borland | September 25, 2020 at 02:00 PM

About six weeks into the pandemic, leasing activity returned to normal levels, but the leasing process has changed.

The pandemic immediately impacted apartment leasing activity, but about six weeks into the pandemic, leasing activity rebounded to normal levels. Quarantine, distance learning, and work-from-home policies encouraged people to move to more accommodating homes, driving leasing demand. However, the leasing process has changed since the onset of the pandemic, and those changes—virtual leasing—will take longer to return to normal.

“At the outset of the pandemic, as people adjusted to stay-at-home orders and physical distancing mandates across a number of U.S. states, our early data suggested a significant decrease in lead volume,” Stacy Holden, industry principal and director at AppFolio, tells GlobeSt.com. “However, after about six weeks, leasing activity largely rebounded to expected levels—there are geographic differences as the timing of the impacts of the pandemic vary, but people still want to move to places that meet their needs. In fact, one could argue that the experience of quarantining at home for so many months has led many renters to seek out their next home, eager to get a change of scenery or something better suited for their new normal.”

In addition to changes in lifestyle, like work-from-home and remote learning, which created demand for larger spaces, many people also had the flexibility to move further away from work to more affordable markets. This trend, again, drove leasing activity. “With many people having had the ability to work remotely this year, the need to live close to the office may have diminished for some,” says Holden. “Without it, it may have encouraged some people to find homes in less densely populated areas, outside of urban centers, ultimately increasing leasing demand in the suburbs and decreasing it in major cities. Additionally, urban areas that are home to many colleges and universities are seeing increased vacancies due to students not coming physically back to school this semester.”

However, it is more challenging to lease units today than it has been in the past. “Pandemic or not, vacancies will always occur. The problem is not that units are sitting on the market without movement—the demand is still there in many regions—the problem so far is that it is simply harder to move the leasing process forward in a remote reality,” says Holden. “But in any case, now is the time for property managers to prepare their operations to succeed in any market conditions.”

This change in the leasing process has been more of a disruptor than the abrupt drop in leasing activity at the start of the pandemic. “Leasing has always been an in-person process, so the shift to physical distancing is a major disruptor to the way the industry has historically converted leads into new residents,” says Holden. “This is the biggest trend in leasing during the pandemic—a monumental shift to conducting leasing activity virtually. It is also a trend that we actually anticipate remaining for the long term, given the flexibility and convenience it provides prospective residents and leasing agents alike.”
Source: GlobeSt.com By Kelsi Maree Borland | September 22, 2020, at 02:00 PM
Suburbs Outperform Cities as Renters Relocate: Report

Rent prices in urban city centers are down for the first time in a decade, according to a new report from Marcus & Millichap.

The national shift toward remote work is shifting rental demand from urban areas to suburban areas, as many workers across the country look for more space at a lower cost, according to a new report from Marcus & Millichap.

Vacancy rates in suburban markets dipped below central business districts in the second quarter of 2020, according to the brokerage firm’s special report on multifamily “Beyond the Global Health Crisis.” From 2002 to 2015, suburban vacancy held steady at a couple of percentage points above CBD. That divide began to narrow in 2016, before finally dipping below urban areas in the second quarter of this year.

The report attributes a few factors to what’s impacting the numbers: health concerns are leading many to stay wary of crowded areas, urban amenities remain shuttered and many offices in central business districts are allowing employees to continue working remotely. Late last month, The Wall Street Journal reported that in Manhattan, one of the largest office markets in the country, fewer than one-tenth of office workers had returned to their workplaces.

Major tech companies like Uber, Facebook, and Google have made announcements in recent weeks that all employees at their firms may work remotely for the next several months, leading many urban apartment dwellers to leave the city and head elsewhere. The exodus has led to falling demand for luxury apartments, Marcus & Millichap reported earlier this month.

“These trends may push more individuals to the suburbs, which could create new suburban employment hubs within metros that in turn fuel strong household formation,” Marcus & Millichap researchers wrote in the report.

The brokerage firm predicts that in the coming years, less densely populated and lower-cost markets in the Sunbelt and inland California could attract renters and employers relocating from more expensive coastal areas like Los Angeles and the Bay Area.

However, while urban rental markets face multiple headwinds, they could end up just being short-term difficulties, according to the report. Proximity to urban amenities and walkability will continue to draw renters to downtown areas, back-filling units left vacant by renters who left for the suburbs.

The rental market may also get a boost from the rising homeownership rate. The pandemic led many older millennials to purchase their first homes, limiting the supply of single-family homes and raising prices. This could lead many, particularly within the upper-tier segment, to stay renting longer.

 

Multifamily operators rely on revenue management to help predict profitability patterns.

With all the pandemic-related turbulence in the market, determining how apartment units should be priced to succeed has become increasingly difficult. During the past two decades, many firms have come to rely on sophisticated pricing and revenue management systems to manage their daily operations. But since the advent of COVID-19, pricing units has become a pioneering effort.

“The most interesting thing about revenue management is that the biggest gains have been during recessions,” said Donald Davidoff, the president of D2 Demand Solutions Inc. Davidoff is currently experiencing his third recession using revenue management. During the first two downturns, in 2002 and 2008, he worked at Archstone, which was the first apartment company to use revenue management.

“We outperformed the market in both of those recessions substantially more than during any of the growth times,” Davidoff noted, adding that the rising tide lifts all boats during an upcycle and anybody can do well. “Where you really have to be smart and granular—and super careful—is when times are tough.”

Operators that rely on manual systems tend to look at a community as a whole and deal with things across the board. Or they’re slow to respond up or down. When they have to suddenly respond to lost occupancy or even improvements in the market, it requires a massive shift.

“Humans are very patterned,” Davidoff explained. “We’re sort of stuck in our ways, and it takes a little while to realize things have changed.”

But technology doesn’t miss things as humans can. During the 2002 and 2008 recessions, Archstone saw two-bedroom units outperform one-bedrooms and studios, as people doubled up. “If you reduced rents across the board, then you missed an opportunity where you didn’t have to reduce rents as much on the two-bedrooms, or in some cases could even increase them,” said Davidoff.

Revenue management is not just about raising rents. It’s about tactically lowering rents to stimulate demand. It’s about reacting more quickly and more granularly—and treating your one-bedrooms differently from your two-bedrooms.

“In fact, during the current recession, we’re seeing in the data for many markets that one-bedrooms are outperforming two-bedrooms. Maybe people don’t want to live with a roommate because of distancing. Maybe more of the people who are in larger units are moving toward single-family. I am purely speculating why,” said Davidoff. “But as a human, I would have gone to the rule of thumb I observed during the other two recessions: In both 2002 and 2008, two-bedrooms outperformed one-bedrooms. So, I would just automatically put that rule of thumb to use and think I was really, really smart.”

But the data is showing that the behavior at the bedroom count level is different this time than the last two recessions. Davidoff noted that if you’re not using a system, there’s no way you’d realize that. And even if you realized it, you might not know exactly how to act upon it and how much. “So, I actually think that revenue management systems are more needed now than before.”

PRICING ISN’T ALWAYS THE ISSUE

As a result of COVID-19, pricing has been trending down in general for Pillar Properties, a Seattle-based developer, owner, and operator of 1,600 units in the Puget Sound area. However, traffic has picked up over the past two weeks, and, depending on the property’s overall health, the submarket and neighborhood, the team has been reporting increasing trends in pricing.

“We’re hopeful we’ll catch up on some of our flattened rent growth and leasing activity,” said Diana Norbury, CPM, senior vice president of multifamily operations at Pillar Properties.

While revenue management technology can help reveal patterns, there are other factors at play today. “We’ve found that pricing isn’t always the issue right now. Some of the purchasing decisions are made around factors like delayed move-in dates related to work or school circumstances.”

Pillar’s perspective and future residents aren’t necessarily price sensitive. They are, however, in a position where they know they can take advantage of slow leasing trends and ask for specials upfront. “Revenue management has helped us find opportunities to push pricing and better manage lease expiration management, and to improve pricing and premiums for on-notice homes,” Norbury explained.

Like other operators, Pillar is approaching pricing, and revenue management forecasting differently now during the recession. “This means longer hold times on pricing, allowing for different (longer and shorter) terms to better manage lease expiration management, and opportunities to improve pricing at the next renewal,” Norbury said.

LOCATE YOUR BREAKING POINTS

Bridge Property Management, based in Salt Lake City, has overseen the management of more than $5 billion in investment property over the past 25 years for both large and small real estate investors. Pricing and revenue management are definitely more challenging during COVID-19, according to COO Tim Reardon.

Reardon has observed many owners and managers implementing panic-based strategies for maintaining and growing occupancy. “The reemergence of concessions in a broad way makes pricing within a submarket more difficult, as net pricing moves on a daily basis are widening,” said Reardon. “The understanding that availability is currently hazy—based on the potential of many nonpaying residents moving out at once—makes pricing decisions more difficult.

Pricing and revenue management systems, however, are absolutely more relevant than ever during recovery from the pandemic-induced recession, Reardon noted. He said that in order to not give away the farm—or to potentially realize some unexpected growth—you need to have a system that will guide you and show you where your breaking points really are. “If left up to feelings, you’re bound to react too emotionally and default to what everyone else seems to be doing and saying,” he explained.

Bridge is continually fine-tuning pricing and revenue management best practices. One current refinement they’ve implemented is including the eviction risk of a property’s current resident base into the new pricing philosophy, potentially changing the direction of pricing moves based on this metric that was previously not taken into account.

“We’ve been pleasantly surprised with the success of our properties over the past few months, but we know the stability we’re experiencing may be running out with the stimulus dollars dwindling,” Reardon said. “Until the moratorium on evictions ceases, we won’t really know the extent of the impact on the industry, but we’re hoping to be able to find some viable deferral solutions for all of our residents, so we can keep them in place, which would be a win for everyone.”

 

Source: https://www.multihousingnews.com/post/how-do-you-price-apartments-in-a-recession/