May 2020 Insights: Impact of COVID-19 on the multifamily market

The May 2020 edition of the MRI Software Market Insights report explores data from February through May 2020 to better understand the impact of COVID-19 on the multifamily market. Building on the trends uncovered in our previous report, the May report provides further indication that the summer busy season that apartment complexes usually see this time of year will lag prior years. Similar to our last entry, the following blog examines some of the key takeaways from the report and evaluates the overall data to best interpret the multifamily industry’s continued response to COVID-19.

1) Shopping continues to recover

The multifamily market experienced a drastic drop in traffic between mid-March and mid-April, but the data from May shows a promising recovery. Looking at the year-to-date numbers, traffic for 2020 is tracking at 101% of 2019, indicating that the traffic lost mid-March to mid-April returned to the market, showing signs of continued strength. New rental applications, on the other hand, show continued improvement through May but have not exceeded 2019 volumes.

These two stats alone show a multifamily market that is still functioning despite the lockdowns and shelter-in-place orders, and as sectors of the economy begin to reopen around the country, we may see these numbers catch up to last year’s.

2) Residents are “riding it out” in place

We continue to see signs of a renter population tending to stay in place as compared to 2019. Even with traffic rebounding, applications, move-ins, and notice to vacate (NTV) volumes are still dragging behind 2019, matching the trends that we saw in April. At the same time, current residents are also staying put more frequently with move outs lagging 2019 while renewals and notice to vacate (NTV) cancellations, a measure of residents deciding to rescind a prior NTV, are trending at or above 2019 levels.

Like almost all numbers, move-out volumes continue to lag, down 17% from mid-March year over year. The reduction in move outs naturally leads to an increase in renewals from mid-March through the end of May. Given these statistics, residents are clearly hesitant to tinker with their current housing situations in the face of an uneasy economy.

3) Pricing is trending further downward and 12-month lease terms are all the rage

The small pricing decreases we observed in April have led to more drastic pricing changes in May. Pricing for new lease terms from 8-14 months are all down an average of 5%, signaling price softening as a reaction to softening occupancy. Continuing the trend reported in April, we still see a greater prevalence of 12-month terms for both new leases and renewals. Seemingly, this continued focus on a 12-month term indicates good lease expiration management practices designed to protect the 2021 summer leasing season. Concession volumes also continue to be well ahead of 2019. It is still too soon to tell if this data will persist, but continued tracking and analysis of this data will help inform on our collective impact, response and progress.

4) Changes in how residents are paying

One of the most unique statistics has to do with the exact way residents are paying their rents. May 2020 electronic payment volume, as compared to February 2020, went up 58%. One of two likely explanations for increased card usage could be that residents struggling with cashflow opted to use a card to pay rent. The other reason might be that as landlords waived card-related fees, residents chose to pay rent via card to collect points as a perk. Our data, unfortunately, does not foretell the “why” behind resident payment choices.

While some of these data points may be cause for optimism, it is important to note that at the end of May, nearly one in four American workers were unemployed. Historically, job growth has driven growth in all facets of real estate, including multifamily. As we look back over the last decade of expansion, continued job growth is strongly correlated with rental demand, driving pricing and new construction.

Enhanced unemployment benefits and government stimulus monies presumably allowed the unemployed to continue paying their rent at near normal rates (see the NMHC rent tracker data here). As the economy reopens and enhanced benefits burn off, a clearer picture of the remaining employment situation will emerge. We expect things to remain fluid throughout the summer, but unlike prior years, an understanding of current trends at a macro level is of the utmost importance. Read the full Market Insights report here.