Residential landlords have had a tough run during the pandemic. For much of the crisis, an eviction ban barred landlords from removing tenants on the basis of not paying rent. The blow was especially brutal to mom-and-pop landlords -- those with a handful of properties who lacked the deep pockets and borrowing options that may have helped larger firms ride out the storm.
But at this point, things are looking up for landlords. Apartment rents have soared in the course of 2021. And going into the new year, we can expect a similar trend for two reasons.
1. Homes are still too expensive
As of the summer of 2021, home prices were up nearly 20% on a year over year basis, as per the S&P CoreLogic Case-Shiller Index. And some experts think home prices could continue to climb in the course of 2022.
With a large share of homebuyers -- including first-timers -- being priced out of the market, many people in need of housing will have no choice but to keep renting until real estate inventory opens up and pricing stabilizes. And as the demand for rentals soars, landlords will have an opportunity to keep raising prices.
Furthermore, while an uptick of available homes could make buying more feasible in 2022, we're unlikely to see a huge influx of listings during the first quarter of the year, as it's historically been a less popular time for putting houses on the market. And if economic- and pandemic-related fears persist into the second quarter, the housing market could miss out on its typical spring boom, prompting would-be buyers to resign themselves to renting instead.
2. Landlords are still recovering
Last year, many residential landlords had no choice but to slash rents and offer up pandemic pricing in an effort to get leases signed. Now, many may attempt to charge higher rents to compensate for those forced discounts.
Also, the pandemic actually drove a lot of mom-and-pop landlords out of business, leaving room for larger property management firms to take over a bigger share of the market. These firms may be less willing to negotiate rents than private landlords.
Is it a good time to invest in multifamily properties?
Last year, buying into apartment buildings or residential REITs (real estate investment trusts) may have read like a precarious bet. Going into 2022, it's a far more viable opportunity for real estate investors.
Since the beginning of 2021, the median rent price for a one-bedroom home is up 12.1%, reports Zumper. By contrast, the median one-bedroom rent rose by just 0.3% in all of 2019 and just 0.6% in 2020.
Now it's worth noting that on a month-over-month basis, things seem to have slowed down in November, with one-bedroom rents rising 0.5% only. But it's also important to keep in mind that rental demand can be seasonal in nature. At this point, we could see a brief downtick in leases signed as people settle in for the holidays. But come 2022, demand could rise again, and rent prices could follow suit , making right now a great time to get a piece of that action.