Economists' Outlook

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Demand for Apartments is Strong, but Rent Collection Risks Remain Elevated in Class B/C Apartments

Compared to the retail or hotel/lodging commercial real estate market, the multi-family market is faring relatively well, according to NAR’s July 2020 Commercial Market Insights report.  However, the lower-end segment of the apartment market has not escaped the impact of the coronavirus pandemic, with 20% of renters failing to pay or deferring rent in May 2020.

According to the US Census Bureau’s Household Pulse Survey, about 18% to 20% of adults 18 years old or over who lived in rental housing have not paid or deferred rent in the past month. Base on the June 18-23 survey that asks about payment of last month’s rent, 19% reported they did not pay or deferred rent payment in May, double the 10% share of renters who missed or deferred rent in March.

Line graph: 19% of Renters Missed or Deferred Paying Rent

Rent collection is an issue that is hitting renters and landlords in the Class B/C apartments. Of the renters who did not pay rent, nearly 80% had a household income of less than $50,000, with at least one in five not paying or deferring rent. On the other hand, less than 5% of renters with a household income of at least $100,000 did not pay or deferred rent.  Nareit also reported that REITS received 97.5% of the typical rent in June, up from 89.9% in April. REITS own or operate apartments with a higher quality tenant base.

Bar chart: Distribution of Household Income of Renters Who Did Not Pay or Deferred May Rent Payment
Bar chart: More Than 20% of Renters in Households with Income Less than 50,000 Missed or Deferred May Rent Payment

The state unemployment insurance and the additional $600 weekly benefit is helping the unemployed pay rent or mortgage. The $600 benefit expires on July 31. By industry, the $600 and state unemployment benefit has more than replaced the lost wages among workers in leisure and hospitality, retail trade, and other services, which account for about 35% of those claiming unemployment insurance.

Table: Unemployment Claims by Industry


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