Labor Market and Late Rent and Mortgage Payments Trends

The May numbers were unexpectedly positive, but still leave the job market 13 percent smaller than pre-COVID-19 levels.

Measures of Apartment Stress in March and May

Source: BLS (employment), NMHC (rent payments), MBA (mortgage payments)

There’s little doubt the onset of the COVID-19 pandemic put severe stress on the U.S. economy and labor market this spring. The economic pain has been felt–albeit unequally–on all property types and capital sources in commercial real estate finance. There has also been an important disconnect between the labor market and apartment markets over the last two months.

The April jobs report showed an eye-opening decline of 20 million jobs. The May numbers were unexpectedly positive, but still leave the job market 13 percent smaller than pre-COVID-19 levels, with a high unemployment rate of 13 percent. The weekly unemployment insurance claims continue to show increases and have now surpassed 40 million since March.

So far, this extreme shock to the labor market has not led to strain in the apartment market. A gauge from the National Multifamily Housing Council (NMHC) of the share of renters making their monthly payments shows only a small fall-off in recent months–with 95 percent making their payments in April, down 3 percentage points from a year earlier. Through the 27th of the month, May collections were running two percentage points ahead of April. With that relative strength in rent payments, most apartment property investors are also making their mortgage payments, with 2 percent of mortgage payments late as of April 20, compared to just less than 1 percent in March.

What explains the disconnect? In all likelihood, the substantial stimulus from the federal government. The CARES Act and other federal programs have provided unprecedented financial support to households. In April, U.S. personal income jumped a massive 10.5 percent on a monthly basis, more than double the previous record–even while compensation fell 8 percent. Government social benefits jumped 90 percent to a record (by far) $6.3 trillion seasonally adjusted annual rate.

As states gradually reopen and more people go back to work, the hope is that on-time rent and mortgage payments can continue to hold steady.

Jamie Woodwell is the Mortgage Bankers Association’s vice president of commercial real estate research.