Welcome to the first update of 2022! While we all get to rejoice in the optimism that comes with a new year, we must remember that, unfortunately, 2021’s problems don’t automatically disappear simply because the calendar turned to January. We’re all looking at you COVID-19! In this month’s update, we will discuss the current surge in cases due to the Omicron variant, a disappointing December Jobs report, and will look ahead at the NAA’s forecast for 2022. May the new year bring you and your family happiness, health and prosperity.
December Jobs Report - The U.S. Economy added 199,000 jobs in December, halving the 400,000 or so analysts were expecting. The unemployment fell to 3.9%, marking a new pandemic-era low, but we still ended the year roughly 3.6 million jobs below the levels seen in February of 2020. The immediate future isn’t necessarily too bright either as businesses deal with the rush of COVID-19 cases brought on by the Omicron variant - figures which likely didn’t factor into December’s numbers due to reporting deadlines. In other words, things could get worse before they get better.
Weekly Jobless Claims - For the week ending January 8th, initial jobless claims came in at 230,000, climbing from the previous week but remaining on par with the figures we’ve seen over the past month. Continuing claims, or the total number of Americans claiming benefits on state programs, fell to the lowest levels since 1973 at 1.559 million. In Utah, we saw a sizable jump, however, from 1,670 last week to over 8,000 as the spike in Omicron cases likely played a significant role with new filers.
Omicron Cases - Everyone’s least favorite houseguest just won’t pack up and go. New cases of COVID-19, fueled by the Omicron variant, are at all time highs nearly two years after the word Coronavirus first entered the public’s vocabulary. A week ago Monday, the U.S. reported 1.08 million new cases, shattering the previous high of 591,000 set the previous Thursday. The United States currently has 146,000 citizens hospitalized and is now averaging 1,550 new fatalities each day. Locally, the Utah Health Department reported 24,147 new cases over this past weekend and is now averaging over 7,700 new cases daily. There is good news, however, as Harvard researchers are hopeful a decline is in our near future based on data from the previous Omicron wave in South Africa. Additionally, this variant seems to be less deadly with Dan Baroach, William Bosworth Castle Professor of Medicine at Harvard Medical School, stating that “It’s very clear that there’s an astonishing number of cases, a moderate number of hospitalizations, and very low deaths.” Let’s hope things start improving soon.
With 2021 now firmly behind us, it’s time to turn our attention to the freshness of a new year. From our experience, a good starting point is to analyze the NAA’s 2022 forecast to get a lay of the land and help set expectations. Here are a few of the headwinds the rental management industry is facing in the upcoming year.
The word “historic” doesn’t quite capture what happened with housing in 2021. As home values soared, so did rents with median rent growth at nearly 18% since January of 2021. That’s unprecedented, and when compared with the more typical 2.6% growth we saw between January 2017 and November 2019, it stands as even more of an outlier. In other words, don’t expect more of the same. 2022 NAA Secretary Chris Burns expects “at least during the first half of 2022, we’re going to see this robust market continue through June, and I think we’re going to see rents continuing to go up.” We agree. The sky high gains seen in the past 12 months will likely slow as the year progresses, but rent growth should outpace what we see in an average year. At some point, renters won’t be able to keep up with the pace of increases and that will precipitate a correction in rent growth to more traditional levels.
According to real estate technology giant Real Page, Occupancy for November was at 97.5% - an all time high. If you think about it logically, it makes sense. Occupancy is high because people aren’t moving due to a combination of low inventory in both the rental and housing markets as well as soaring prices. What do you do if you can’t afford to buy, there are few options available to rent, and prices on the available inventory are sky high? Easy, you stay put, and that trend is expected to continue through at least the first half of the new year. Uncertainty is also a major factor as Burns points out “When the economy starts to get a little uncertain, people tend to stay put in their situation … and it does keep some people a little more stationary and not so apt to jump around as much. [They’re unsure if] six months from now they’re going to be in the same position or not, so the rental market does kind of benefit from that uncertainty sometimes.”
If you paid any attention to the news in 2021, you no doubt heard about the supply chain and labor market issues that plagued the construction industry. Construction is an important lever because it influences the supply side of the equation. New supply is on the way, as evidenced by a 34% increase in new multifamily building permits between Q3 2020 and Q3 2021 and a 40% year over year jump in multifamily starts (start = excavation has begun). Supply chain issues and labor shortages have no doubt caused delays as multi family completions are off by nearly a third from October of 2020, but a good amount of new inventory should come online this year and that should help meet the pent up demand.
In October of last year, inflation hit a 30-year high at 6.2%. Just as all Amercans watch helplessly as the costs for day to day goods continue to climb, the expenses for operating a rental property are going up as well. This means that the cost of everything including insurance, utilities, taxes, maintenance expenses, and salaries for management personnel is increasing, and the only measure of control is to increase revenue to offset losses. That’s exactly what we’ve seen with double digit 2021 rent increases in nearly every market. As supply chain problems ease, it should help, but unless we can get inflation under control, volatility will remain.
The great resignation, or the phenomenon where record numbers of people left their jobs during the pandemic, has decimated certain labor markets. For example, according to the Beige Book from the Federal Reserve, the real estate and leasing industries saw 48,000 people quit in October of 2021 alone and no submarket has been hit harder than maintenance. Burns indicated “On 62,000 units in the South, I’ve probably got 80 positions open. We could fill the positions if we had candidates, and particularly, the maintenance side is tough. There are just no maintenance candidates to be found. There’s literally just no application volume. There are some applying, but it’s nowhere near what the normal application flow should be for people applying.” We’ve experienced the same situation here locally. It’s almost as if those job candidates have disappeared, and that only adds upward pressure on pricing for those vendors in the industry.
If you ever find yourself wondering about the severity of legislative impact in the rental industry, look no further than the monumental changes we’ve seen in just the past 24 months. From the CARES Act to the CDC eviction moratoriums to the billions of dollars in rent relief, our industry has seen unprecedented transformation in a very short period of time. Perhaps the most impactful change relates to the effects of inflationary pressures and inadequate supply on rent prices. These massive increases from the past year have applied pressure on lawmakers to act via legislation geared toward reducing the financial burden of housing. We’ve seen ballot initiatives in various parts of the country favoring rent control, renewed interest in limiting late fees, eviction protections, and screening limitations. We expect 2022 to bring more of the same as we all adjust for life in a post pandemic world.
Utah Real Estate Market
The Utah real estate market continues to sizzle. In the last month of 2021, we reached a new all time high median sold price of $559,000. That figure represents a blistering 24.71% year over year increase for single family home values in Davis, Salt Lake, and Utah counties. While those kinds of gains are just incredible, they are unsustainable and do offer a fair amount of challenges. As with any housing market experiencing historic gains, the market here in Utah will eventually cool but demand remains high as we head into 2022.
Median Sold Price*
Monthly Change: Up 4.0%
Monthly Change: Up 1.9%
Average # of Active Listings*
Monthly Change: Down 40.2%
* all graphs/data are for single family homes in Salt Lake, Utah and Davis Counties.
Utah Rent Growth Stabilizes - As rent growth cools nationwide, some Utah cities are still seeing monthly growth in excess of 1%. Orem and West Valley City saw month over month increases over 1.5%, while Midvale, Salt Lake City, South Salt Lake, and West Jordan saw gains between 0.5% - 1.0%. The only markets to show a month over month decline were Herriman, Murray, North Salt Lake, and Sandy but all have year over year gains in excess of 17%. Gains like these won’t last forever, but landlords are benefiting from the inflationary pressures seen on rental housing.
More Opportunity for Utah Landlords - We wanted to highlight a recent article from the Salt Lake Tribune discussing one possible solution to the ongoing housing shortage we’ve seen here in Utah. ADU’s, or Accessory Dwelling Units, are a viable option to help with the state’s estimated 45,500 unit housing shortage and some cities (like Salt Lake City) and developers (Ivory Homes) are starting to build ADU communities. Sure, ADU’s alone won’t solve all of the state’s housing issues, but in conjunction with higher density, they represent both a helpful strategy and an opportunity for landlords to add additional, income producing units to their single family homes.
Rent Control Efforts on the Rise - In light of the financial hardships many renters have faced due to the pandemic and more general housing affordability concerns, we’ve seen increased regulatory efforts geared toward rental housing. Rent Control measures, or government programs that place limits on the amount landlords can charge, are starting to pop up in states including California, Minnesota, Maryland, Massachusetts, Minnesota and Washington. While there are potential benefits to housing affordability and neighborhood stability, limiting profitability will kill investment in rental housing, limit overall supply, and cause a flood of maintenance related issues.
Rental Insurance FAQs - Have you ever wondered what exactly the insurance policy on your rental covers? If the answer is yes, the time to find out is now and not when you have a claim to file. This article, from National Real Estate Insurance Group, is a good introduction to the basics of rental property coverage and answers some common questions. If you have questions specific to your policy, please contact your insurance agent.