Property managers are stuck between a rock and a hard place: They empathize with the struggles of residents who have lost their jobs during the COVID-19 crisis, and have worked with them to create payment plans to fit their individual situations. Most residents have continued to make paying their rent a priority, with the National Multifamily Housing Council reporting that 93.3% of residents had paid their rent by May 27. However, some believe this number is higher than the industry average, containing a larger proportion of residents of high-end apartment buildings. In mid-May, a Census survey found that 1 in 5 residents had deferred their rent, made a partial payment, or failed to pay in April; and 1 in 3 residents have little to no confidence in their ability to pay rent in June.
3 months into this crisis, with eviction bans expiring and their own bills piling up, many property managers are facing a decision on how to proceed with the small percentage of residents who haven’t paid their rent in months. With 1 in 4 renter households spending more than half of their income on housing costs before COVID-19 worsened their financial situation, some of these renters may have been struggling to pay the rent for longer than the length of the current crisis.
This puts residents and owners alike on the front lines of a harrowing financial crisis. What’s at stake is millions of residents’ access to shelter in the midst of a pandemic, as well as the livelihoods of 17.5 million industry employees whose own incomes depend on rents being paid.
In this week’s COVID-19 digest, our goal is to provide a macro view of U.S. renters’ overall financial situation so that property managers can put what’s happening in their properties into context. Wherever possible, we zoom in to see how certain groups have been impacted differently by the current crisis.
Headlines: How Are Renters’ Finances Faring 3 Months Into the COVID-19 Crisis?
Though the May jobs report was more positive than expected, the unemployment rate remains shockingly high at 13.3%. 2.5 million jobs were added as workers who had been temporarily laid off returned to their former positions to support the economy’s reopening. The largest gains were in the industries that were most impacted by layoffs: leisure and hospitality, construction, education and health services, and retail. However, 30 million workers are still relying on unemployment benefits to get by, with an additional 1.9 million Americans applying for unemployment insurance in the last week of May alone. In addition, only 3 in 5 newly added jobs were full-time positions, so many of those who are able to return to work may find themselves underemployed. Rather than indicating a recovery, many economists believe that the increase in jobs means that the economy has hit its floor, and it remains vulnerable to a resurgence of the virus.
54% of Americans are concerned that they’ll lose their housing without additional assistance. Stimulus checks and unemployment insurance have helped residents afford rent—so far. However, CARES Act funds are nearly depleted, stimulus checks were sent weeks or months ago, expanded unemployment payments expire on July 31, and only 56% of unemployment claims had actually been paid out as of mid-May. As a result, Google searches for ‘rent assistance’ have reached new highs. Nearly 1 in 2 renters report that they’ve made at least one sacrifice to ensure that they can pay their rent or mortgage since the beginning of the pandemic, such as pausing 401k contributions or paying with a credit card. 49% of U.S. households have experienced job loss since March 13, but just 39% have qualified for housing assistance during the crisis. Without further intervention from Congress, as the NMHC and NAA continue to advocate for, rent payment rates may be impacted significantly in the near future as the chances of a V-shaped economic recovery remain low.
An estimated 22.5% of U.S. households are at risk of eviction or foreclosure due to the pandemic and financial crisis, including 28 million renters. The federal eviction moratorium (which applies to rental properties that receive federal assistance or have federally backed mortgages) expires on July 25. This will make evictions legal for an estimated 30 percent of renters, unless their city or state has its own ban in place. Though eviction can be the only remaining lever for landlords to pull when renters aren’t paying rent or communicating about the difficulties they’re facing, many fear that an unprecedented crisis of homelessness is on the horizon. To put this into perspective: An estimated 3.7 million evictions were filed in 2016, when the unemployment rate was 4.7%. Today, the unemployment rate is 13.3%.
Residents and owners of non-subsidized, low-cost rentals are at risk. Nearly half of below-market-rate units are owned by individual investors with paper-thin margins, many of whom weren’t eligible for small business aid under the CARES Act. These rentals—often single-family homes, duplexes, and small apartment buildings—are most likely to house renters whose jobs were impacted by pandemic-related closures. When these residents can’t pay their rent, their landlords often can’t afford to pay their own bills, creating not only a risk of eviction and foreclosure, but also of these rentals and their owners disappearing from the market altogether—a big loss for lower-income tenants and mom-and-pop landlords alike.
Millions of Americans are currently in forbearance on their loans, which could predict a wave of bankruptcies on the horizon. Americans have requested the ability to make partial payments or skip payments altogether on at least 15 million credit card accounts and 3 million car loans so far. Upon closer examination, the situation is worse for people of color, who are up to twice as likely to have jobs that have been impacted by the pandemic, as well as twice as likely to have fallen behind on payments. In addition, 9% of all mortgages are in forbearance, meaning that 4.75 million homeowners are unable to make their monthly payments—an increase of more than 2000% (yes, two thousand percent) since early March. Though forbearance may provide relief for now, sooner or later, these payments will come due—sometimes all at once—with great consequences for those who are still out of work. This could have a ripple effect on renters’ ability to pay their rent this summer and beyond.
Other Headlines: Leasing Activity, Rent Growth, Occupancy Rates & PPP Loan Updates
The last week of May saw a 19% year-over-year increase in new leases being signed. Overall, leasing activity was up in the second half of May after reaching a low point at the end of March, when 46% fewer leases were signed in comparison with the same week in 2019. 39 cities saw lease signings increase year-over-year, with Fort Worth, Greensboro, Memphis, San Antonio, South Florida, and Virginia Beach seeing the largest spikes in activity. 7 cities saw large declines, most of which had job markets that were hit hard by the virus: Boston, Chicago, Cincinnati, New York City, Orange County, San Francisco, and San Jose. Only time will tell whether current highs represent pent-up demand that will continue for the remainder of leasing season, or if it will trickle off as more renters decide to stay put than in past years.
Rents on new leases are down by 3.8% year-over-year, with executed rents coming in lower than advertised rents as property managers leverage concessions to motivate prospective renters to sign. Executed rents dropped by 8% or more in Boston, Detroit, New York City, Salt Lake City, San Francisco, and San Jose; but they grew by at least 2% in Cincinnati, Columbus, Memphis, Milwaukee, Nashville, Pittsburgh, and Virginia Beach. Asking rents also saw their first year-over-year decrease since 2010, dropping by 0.5 percentage points since May 2019. Asking rents dropped by 3 to 5% in Denver, Los Angeles, Oakland, Orlando, San Francisco, and San Jose. Meanwhile, rents grew by 2 to 3% in Cincinnati, Greensboro/Winston-Salem, Memphis, Phoenix, Riverside/San Bernardino, and Virginia Beach.
Occupancy rates have slipped by 0.4 percentage points since mid-March, reaching 95.2% at a time of year when occupancy usually rises. RealPage attributes this to a slowdown in new household formation, which is typical during a recession as unemployed workers seek to lower housing costs—for example, by moving in with family, or remaining in a rental with roommates rather than searching for their own apartment. Out of the 50 largest U.S. markets, occupancy has only remained steady between 2019 and 2020 in New York City and Virginia Beach. The largest declines have been in Las Vegas, Los Angeles, Orlando, Raleigh/Durham, Salt Lake City, and San Francisco.
Major changes were made to the PPP loan program, though many real estate businesses are still not eligible. In order to have their loans forgiven, the program will now allow borrowers to use funds over a period of 24 weeks (rather than 8 weeks); to devote 60% of funds to payroll (rather than 75%); and to amortize the loan over 5 years at a 1% interest rate (rather than 2 years).
This Week’s Best COVID-19 Resources for Property Managers
- The Lasting Impacts of COVID-19 on Residents and Operators (National Apartment Association)
- Business Un-usual: The Post-COVID-19 World [Video Series] (Buildium)
- Rental Fraud on the Rise During COVID-19 (RealPage)
- COVID-19 State Foreclosure Moratoriums and Stays (National Consumer Law Center)
- New Household Data Shows Renters Face an Uncertain Housing Future (National Multifamily Housing Council)
- U.S. Apartment Market Performance Deteriorates in May (RealPage)
- Wood Partners Executive on Rethinking Multifamily Operations (Multi-Housing News)
- Hurricane Season Doesn’t Stop During a Pandemic (National Multifamily Housing Council)
Wondering how things have changed? Jump back one week to 5/30/20.Read more on COVID-19