A significant laggard at the beginning of the pandemic, independent landlords in Gateway markets (New York, Los Angeles, San Francisco, Washington D.C., Houston, Dallas, Chicago, and Boston) have seen their on-time collection rates rise back in line with rates seen elsewhere.
Gateway Markets’ on-time collection rates were consistently 12-16 percentage points below units elsewhere at the onset of the pandemic, but preliminary data for March 2022 show an average of 81.4%, just 0.6 percentage points below non-Gateway markets. The improving environment in Gateway markets is indicative of the far-reaching effects of housing market growth in recent quarters.
The S&P CoreLogic Case-Shiller 10-City Composite Home Price Index, which includes 6 of the 8 metros listed above, reported a 17.53% year-over-year increase in home prices for the 12 months ending in January 2022. While the 10-city index also includes traditionally non-Gateway markets such as Las Vegas and Miami—which have enjoyed much of the Sun-Belt-centric growth that we have discussed in detail in a previous article— the index’s broad increase reflects how nationwide supply-demand conditions have facilitated upward price pressure across the board.
The increase in home values naturally trickles down to rent prices as discussed by the Dallas Fed. As small landlords in Gateway markets reposition their assets to take advantage of the friendlier rent environment, tenants may face less flexibility when it comes to the timeliness of payments. As a result, on-time collection rates in these markets should continue to improve.