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What Missed Rent Payments, Pandemic Could Mean For REITs, Housing Market

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What Missed Rent Payments, Pandemic Could Mean For REITs, Housing Market

Thirty-two percent of Americans have not made a full, on-time housing payment in July, an increase in the delinquency rate from 30% in June, according to Apartment List.

Benzinga chatted with Apartment List research associate Rob Warnock for insight on the economic impact of missed rent payments and the future of the rental market. 

A Looming Crisis: Low-earning renters are even more likely to miss payments. Forty percent of renters making under $25,000 a year have missed payment, according to Apartment List's research.

Problems tend to compound for those who don’t have resources, but moratoriums on evictions are providing at least some sort of protective buffer, Warnock said.

In areas such as San Francisco, landlords are seeing higher rates of missed payments, and renters are using moratorium protections to prioritize what money they do have to spend on other necessities.

It is important to understand the chain of dependencies that missed rent checks truly represent.

When a tenant doesn't pay, it can lead to a landord being unable to pay a mortgage, and if they can't pay the mortgage, the house goes to the bank.

It's a chain of events similar to what occurred in 2008, Warnock said — but in rentals. 

Private real estate companies that used to provide a stable investment in a wayward market are feeling the effects of the crisis. 

Real estate investment trusts such as Apartment Investment and Management Co. (NYSE: AIV) or Essex Property Trust (NYSE: ESS) have already experienced a decline since the beginning of the year. 

A Renter's Market: In 56 of 100 cities nationwide, including San Francisco and New York, rent has either decreased or remained steady since March according to Apartment List research.

The consolidation of households during the pandemic has increased housing supply, Warnock said. 

And with many colleges going partially remote, college towns are experiencing vacancies and a spike in housing supply, he said. 

Moving Patterns: People who live outside cities are still looking at cities, with little drop in interest, according to Apartment List. 

Macro-level data looking at why people are motivated to move shows that financial issues triggered by the pandemic are the leading reason, Warnock said. 

As for the future, he said there may be changes in the relationship Americans have with urban density.

An exodus from cities is unlikely, although preferences will change, Warnock said, adding that he expects a slowdown in urban construction. 

 

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