Thanks to a perfect storm of chaotic local and world events, 2020 was a year like no other for landlords and tenants in Washington. A vaccine has been approved for emergency use to help bring an end to this global health crisis, so what should we expect in real estate in 2021?
At VerraTerra, we’ve been helping manage Seattle area rental properties since 2010. With hundreds of single family and multi unit rentals in our care, we have a unique view on the market.
What we expected. What actually happened.
Washington Residential Rental Market
When Washington state lockdowns began in March and April 2020, we expected the rental market to stay strong expecting that tenants would not want to go anywhere or deal with a move at that time.
Based on VerraTerra rental data, we were correct on the rental market side of things. Tenant retention was higher in 2020 than the previous year. For example, our lease turns (people ending their lease to move elsewhere) were down by 18% in 2020 compared to 2019.
We aren’t expecting a lot of tenant turnover to happen until Q3 of 2021, possibly sooner if vaccines are widely available to the general public. Concern for safety is a driver of tenants choosing to stay put, another is financial security.
Our rate of non-performing rentals (unpaid or past due rents) since the pandemic started has been about 10-15% of homes, less than originally feared. This may be in part to the fact our local economy is largely supported by tech jobs and other professions that have easily transitioned to remote work.
Should you consider investing in Washington rental real estate in 2021?
As a long term investment, what happened in 2020 is just noise, albeit really loud noise. As quarantine and social distancing efforts continue (even after a vaccine is widely distributed) we feel a lot more jobs will continue to be remote. This will change people’s housing requirements. This may create new opportunities for investors who want to buy larger homes at lower price per square foot in outlying areas. Tenants who sustain their “city” employment and salaries can afford much more home outside of major metro areas.
We predict suburbs over core downtown will be better rental investments. We expect a lot of businesses will be re-evaluating their office space needs. If the job can be done remotely, working from home will likely be a permanent or at least hybrid model. This will lead renters to wanting more space and with less need to be in the downtown areas.
What about evictions in 2021?
The issue of evictions is going to be significant. There are a substantial number of tenants who haven’t paid rent since March 2020. Evictions are going to take a long time and payment plans are likely not going to work. If a particular tenant gets a new job post-pandemic, they are likely going to be able to pay their current rent, but not to pay up to a year’s worth of back rent. For many, that would mean paying double rent for a year to catch up. We don’t see this happening. The most likely situation is some government bail out or waiver of those months for landlords. If landlords don’t have to pay mortgage for those months, then they shouldn’t collect from tenants. Of course, that doesn’t answer what to do with investment homes that had no mortgage. The ultimate answers remain to be seen. We expect it to be messy and slow.
What do you predict for rental rates in 2021?
We think this will be government controlled for most of 2021. Some landlords may be able to negotiate an increase, but we don’t expect there to be much opportunity for increased rental rates in 2021. Recent data in the Seattle area, shows rents actually declined in 2020 – for the first time in a long time. You may need to lower rent for vacant properties to ensure you are priced competitively in the market and keep your vacancy rate low.
What do you predict for vacancy rates in 2021?
We don’t foresee any change in the speed of filling vacant rentals as compared to 2020. Even during these months of crisis, we were able to fill our vacancies generally within the same 30-45 days we consider “normal”, albeit with some outliers.
Washington Real Estate Market
The area we serve is near the epicenter of the U.S. health crisis in Kirkland, Washington. Things started to feel uncertain fairly quickly. In Spring and Summer 2020, Washington state governor, Jay Inslee, ordered a lock down. We expected the sales market to slow to a crawl.
We were dead wrong. There were some pocket areas that slowed down in the area, but overall, the real estate sales market in Washington state boomed in 2020.
Many homes for sale in the Seattle area had multiple offers, and sold for more than asking price. Prices rose by double digits, year over year, in areas like Okanogan and Chelan counties. As more people are working remotely, their housing options have expanded to places outside major cities like Seattle, Bellevue and Kirkland to less populated areas like Chelan, Long Beach and the Methow Valley.
Residential real estate supply is low, with NWMLS reporting strong demand and much lower supply in 2020 compared to 2019. Coupled with historically low mortgage interest rates (that look like they’ll be around for the foreseeable future), housing prices are expected to remain strong in the year ahead.
While the benefactors of this positive market were people who already owned homes, the people that were hurt were generally the lower class and lower-middle class that could not work from home or lost their jobs because of the pandemic. Going into 2021, as vaccines are more widely distributed, we think buyers will be back in the market in full force and it will remain a seller’s market. Especially if mortgage interest rates remain low, which is what we predict.
Due to unforeseen local and global events, the rental and real estate markets gave Washingtonians many surprises in 2020. Undoubtedly, there is uncertainty to come in 2021, though some things seem predictable. We expect the rental market to remain strong. Potential investors might consider larger, more suburban homes to accomodate for predicted trends given the changes the pandemic has wrought. Real estate sales in the Seattle area are positioned for continued growth; high home values and demand. If you are a landlord or considering investing in rental real estate, VerraTerra is here to help. We have over ten years of experience. We’ve weathered the s%#t storm that was 2020. We look forward to hearing from you and helping with your long term real estate investment plans.