What we have been forecasting since the COVID War began in February, that housing prices would decline in densely populated, once high flying urban cities and commercial real estate will rapidly decline as business go bankrupt, shrink and more people work from home, is now becoming reality.
As the “Greatest Depression” deepens, so too, will these real estate sectors.
On the other hand, just as we had forecast that millions would be moving from these densely populated areas, which are also being targeted with protests and rising crime rates to more ex-urban areas, home prices in these regions will move higher but retail and office space sales will remain soft and in many instances prices will decline.
Here are some of the trends:
32 Percent of U.S. Households Missed July Housing Payments. As of 8 July, 32 percent of U.S. households had not paid their rent or mortgage for the month, according to Apartment List, an online rental site.
Roughly 19 percent of households made no payment at all and 13 percent made only a partial payment.
About 36 percent of renters, who are more likely to earn lower wages than homeowners and work in customer-contact jobs wiped by the economic shutdown, missed July payments, compared to 30 percent of homeowners.
The proportion of households in arrears has risen from 31 percent in May and 30 percent in June to 32 percent in July.
Only 30 percent of households that were late making their May payment were able to make their full June payment on time.
As late fees are added, the amounts owed rise and the chances of late or missed payments increases in a vicious cycle.
“Delayed payments in one month are a strong predictor for missed payments in the next,” Apartment List said in reporting its findings.
The housing market is bracing for what one analyst has called a “tsunami” of evictions when a federal moratorium on evictions and foreclosures ends on 1 September; state and locals bans vary widely and many already are ending.
The U.S. House of Representatives has passed bills that extend the ban on evictions and offer housing payment supports. The Republican-controlled Senate has not scheduled action on the measures and is unlikely to pass them.
23 Million Renters May Face Eviction. From 19 to 23 million Americans who rent their homes could face eviction by October, as $600 weekly federal support checks end on 1 August and government bans on evictions expire, said the COVID-19 Eviction Defense Project, a nonprofit group of economists and attorneys.
The project developed an economic model that took into account renters’ incomes, average savings, median fixed costs such as rent, utilities, and taxes, state unemployment payments, and federal stimulus checks. The result showed as many as one of every five of the U.S.’s 110 million renters are at risk of being thrown out of their homes three months from now.
Every year since 2001, median rents have grown faster than median incomes. Also, before the economic lockdown, renter households had a median income of $40,500, compared to the national median of $63,000. More than 40 percent of renting households were paying at least 30 percent of their income for rent; 25 percent were paying half or more.
By January of this year, rental vacancies were at their lowest in more than 40 years and rents had risen in response. Then the economic shutdown threw millions of renters – often low-wage workers with few savings or other financial resources – out of their jobs.
As a result, 19 percent of renters were late paying their May rent or formally deferred the payment completely; 31 percent of renters surveyed in June expressed “little or no” confidence they could pay June’s rent on time.
The cost of eviction is more than financial, according to the Aspen Institute’s Financial Security Program.
Often, landlords refuse to rent to persons who have been evicted in the past, so evicted families often end up in the least desirable neighborhoods, with poor schools and little access to grocery stores or banks. Moving expenses and court costs can claim the evicted family’s scarce assets. Children frequently fall behind in their new schools, in part due to the family’s emotional turmoil brought on by eviction and poverty.
The HEROES Act, which the U.S. House of Representatives passed in May, includes $100 billion in rental aid, but the Senate has yet to consider the measure and Republicans have expressed skepticism about additional stimulus measures.
The National Low Income Housing Coalition has called the $100-billion allotment the minimum needed; the National Apartment Association and National Multifamily Housing Council, which represent landlords and property managers, estimate that an amount closer to $150 billion is required to avoid mass evictions.
Meanwhile, state and local governments, as well as some foundations, are launching rental aid programs and re-establishing eviction bans.
NYC Landlords and Tenants at Breaking Point. Two-thirds of New York City residents rent their homes and about a quarter of them have paid no rent since March, the city’s Community Housing Improvement Program reports.
Most of the city’s renters pay a third or more of their income for rent. More than 700,000 renters lost jobs or income under the shutdown, according to New York University’s Furman Center.
Because landlords have no cash flow and are having difficulties replacing defaulting tenants with new ones able to pay, the city may soon be face hundreds of millions of dollars’ worth of unpaid property tax bills.
A state law enacted last month forbids landlords to evict tenants as long as social distancing rules are in effect, which might be until a vaccine is developed and widely dispersed. However, unpaid rents still accrue and the law allows landlords to take other legal actions to try to collect back rent.
The $600 weekly federal unemployment benefit that has enabled many renters to keep current will expire at the end of this month, leaving thousands more to slip into arrears.
Some tenants are working with landlords to negotiate payment plans or reduced rents; others are simply hoping help will appear.
The problem is particularly acute because most renters are lower-wage workers or employed in service industries, such as hospitality, that have been hardest hit by the shutdown.
The state’s law may “reduce the number of people arriving at homeless shelters, but you’re likely exacerbating generational poverty as a consequence,” says Neil Steinkamp, a managing director at financial advisory firm Stout Risius Ross, because low-wage renters will still be liable for back rent and may see their credit ratings destroyed, creating lasting damage.
Congress stepped in to backstop the mortgage market when the economic shutdown took hold but the federal government has offered no plan to aid renters or landlords.
Landlords also are squeezed by rising vacancy rates, which are nearing 20 percent in some cases. College students have left town or moved back with parents; many people, especially those who can work from home, have fled the closely-packed city for the suburbs.
“There doesn’t seem to be any plan and the looming problem is so large,” said Jonas Shaende, chief economist at New York City’s Fiscal Policy Institute think tank.
TREND FORECAST: “Homeless and Helpless,” which was one of our Top Trends for 2019, months before the COVID War was launched, will, unfortunately, worsen… across the globe.
NYC Commercial Real Estate Market Implodes. Investors in the city’s commercial buildings paid $3.6 billion for 170 properties between 1 April and 30 June, according to B6 Real Estate Advisors.
The sales volume was the smallest since 2009’s second quarter, when there were 523 deals done, totaling $7.6 billion, the analysis firm said.
The dramatic drop will slash the city’s revenue from its’ 2.65-percent real estate transfer tax, which brought in more than $893 million last year. In 2020, that figure will fall to $500 million, B6 predicted.
In addition, the value of commercial buildings has fallen during the global economic shutdown. That will cut into the city’s property tax revenues, which are calculated as a percentage of a property’s value.
In the Great Recession, the decline in sales was more gradual, said Adrian Mercado, B6’s CIO. “Here, you see a cliff. It’s a threat that commercial real estate has never faced before in this city.”
TREND FORECAST: When the COVID War was launched, we forecast commercial real estate would be hard hit. This is just the beginning. As more businesses close, as people leave densely populated areas to escape rising crime rates and high costs, as more people work at home, across much of the globe, once high flying cities and their rents will continue to decline.
NYC Suffers Economic “Heart Attack.” With unemployment in double digits, New York City is in the worst financial condition in almost 50 years, since it almost went bankrupt in October 1975.
Past crisis resembled a lengthy illness, said Frank Branconi, formerly an economist with the city, but “this was like a heart attack.”
Almost 1.5 million people lost jobs or suffered cuts in their work hours as entire economic sectors shut down, such as hotels, restaurants, conventions, and entertainment.
Hotels and restaurants alone turfed out an estimated 250,000 workers.
Big Apple residents have filed about 1.4 million new claims for unemployment benefits from March through June. In the week ending on 27 June, the number of new claims filed rose in Brooklyn and fell only slightly in the city’s other four boroughs.
The city’s unemployment rate reached 18 percent in May, compared to 10 percent at the peak of the Great Recession. June’s figures are due out on Thursday.
About one in four people of color were out of work in June, compared with about one of every nine white workers, the city comptroller’s office reported.
Job losses will continue through the rest of this year, in part because the summer tourist season is being lost and Broadway’s theaters are likely to remain dark until 2021, the city’s Independent Budget Office has predicted.
TREND FORECAST: With new restrictions put on New York City restaurants and the ban on concerts and live events, the city will sink deeper into fiscal crisis. Moreover, with fear among most citizens to mingle with masses and people masked up, there will be no great spike in tourism, restaurant, and hospitality businesses once, or if, draconian COVID rules and regulations are lifted.
