Additional Unemployment Payments Are Done, Missed Rent Payments Are Just Getting Started

Even as unemployment has soared over the past few months, rent payments remained relatively steady due in no small part to the $600 weekly payments in federal unemployment benefits. Now that the extra $600 per week in benefits has ended and negotiations for an extension remain mired in Congress, the multifamily sector may well see an impact. 

The first two weeks of July saw an increase in missed rent payments, up to 12.4%, according to online real estate database Zillow. The missed payment rate was 9.9% at the same time in 2019. During the first week of July, 22.6% of U.S. apartment households didn’t pay any rent, up from 19.2% from the first week of June and the highest point since March of this year. 

“The rental market has been more affected by the coronavirus pandemic than the for-sale side appears to have been. The steady climb of the past few years has come to an end as rent growth has slowed nationally and prices have outright fallen in a few markets,”  Zillow economist Joshua Clark said in a statement. 

Rent prices in the U.S. in general have fallen during the pandemic, dropping $5 over the course of spring, down to $1,723 per month. 

While not a seemingly significant drop, the margins on rental properties are pretty thin. The average annual return currently sits at 6.4%. In 2015, it was 13.3%. 

Landlords typically put more than half of their income back into the properties and fixed costs associated with property ownership. 

“For property management companies, rental payments support things like wages for team members, maintenance, unit and amenity upgrades, all the way down to the systems that allow a business to manage their operations,” Brian Miller, director of marketing at Berger Rental Communities, said in a statement. 

That ripple effect could turn into a tsunami in the coming months, as the industry expects a significant uptick in missed rental payments due to the lapse of unemployment benefits. 

Smaller property owners, not buttressed by income from multiple units, are expected to bear the brunt of the financial difficulties.

“This is an incredibly stressful time for so many, especially when it comes to people’s homes, the place we go to be safe,” Rachel Briseño Bruno, a San Antonio-based realtor, said in a statement. “Many landlords we work with own one or two properties as an investment for retirement or a child’s college fund, and they are on the hook for mortgage payments on those homes. Losing just one tenant who may have lost a job and moved back home or in with a friend can have an enormous impact.”