June 1st rent payment data from LeaseLock suggests that economic cracks are deepening, and will stress rental housing unless more comprehensive relief is provided.

A new month has begun, and it’s time to re-evaluate how American renters are holding up amid the economic downturn.

Although states have begun to loosen stay-at-home orders and businesses are partially reopening, unemployment has hit an unprecedented high. Paired with pending eviction moratorium expirations and a patchwork of depleting emergency rent funding, Covid-19 continues to test the multifamily industry, according to recent data analysis from a 105,070-unit sample from 1,029,428 live units under management by LeaseLock clients.

Data is nationwide, representing more than half of the NMHC Top 10 property managers in the country and all asset classes (A, B and C). Asset class composition: A (36%), B (55%), C (9%).

In the beginning of May, rent payment behavior started strong. As the country moved through the month, rent payments rapidly declined, and evidence of growing struggle among Class C residents began to emerge.

June 1 rent payment data suggests that economic cracks are deepening, and will stress rental housing unless more comprehensive relief is provided.

While rent payments have yet to fully recover since Covid-19 set in, April and May rents held steady. After federal relief checks were cut and unemployment benefits were padded, renters prioritized putting funds toward rent payments. However, as predicted in LeaseLock’s analysis of Class C rent payments in May, strains on working class Americans created ripple effects on the rest of the economy — and has started extending to the rest of the apartment industry.

First Days of June See 2% Drop

First-day rent payments in June saw a 2-percentage point drop in total rent collected compared to May and April — and a 6-percentage point drop compared to the pre-Covid average.

With federal relief checks spent and bolstered unemployment benefits set to expire next month, Americans are starting to feel the financial strain. A growing number of renters are seeking rent assistance: Google is showing more than double the search interest in “rent assistance” since April. Searches for this term also spiked again in Mid-May, suggesting renters were concerned about making rent in the lead up to June.

While April saw a slight surge in end-of-the-month rent payments, May did not see a similar spike, suggesting renters might be holding cash on hand closer to the belt.

Class C Rent Payments Continue to Fall

As expected, rent payments at Class C properties continue to decrease. Traditionally, Class C properties house working-class residents, who were more greatly impacted by recent service industry lay-offs. After slipping downward for the last two months, Class C properties saw another 3-percentage point drop in first-of-the-month rent payments.

California Rent Payments Drop

As the economic climate worsens, some regions in particular have been hit hard. Partial payments can still be seen across several metros, with a month-over-month decline in the percentage of renters making full rent payments on June 1 in Los Angeles.

In Seattle, on the other hand, the percentage of full rent payers has held relatively steady. This is likely due to Seattle being one of the first metros to be hit hard by Covid-19, which triggered a response by operators to devise payment plans for affected renters.

Looking at partial payment data, Los Angeles shows signs of financial hardship. While the overall percentage of total rent paid on the first of the month has declined 5 percent since last month, Los Angeles has experienced a nearly 20 percent decrease. This drop is perhaps attributed to rising unemployment, a lack of rental assistance, federal benefits running out, and recent protests.

Resident Sentiment Improves: J Turner Research

A national resident survey conducted May 22 to May 31 by J Turner Research on resident sentiment about paying rent predicts a rent collection of 84.28 percent by June 10, an increase of about 5 percent over the previous month at the same time.

There is a slight improvement compared to the prior month with 74.68 percent of respondents indicating that they would be able to pay their rent on time (depending on the rent due date for the respective property). In May, J Turner estimated study showed that 70 percent of respondents said that they would be able to pay rent on time.

Lays-Offs and Furloughs. More than 9 percent of respondents said that they had been furloughed or laid off from their job with an additional 5 percent of respondents indicating they were self-employed. Self-employed residents said their business revenues have been significantly impacted. Fifty-one percent of residents who reported being furloughed/laid off said they would be able to pay the rent for June on time.

The number of unemployed respondents is somewhat less than the latest national numbers with 16 percent of the workforce filing for unemployment.

Rent Payment Priority. Rental payments continue to be of most concern to respondents and a priority compared to car payment, utilities and groceries. In May, while 53 percent of respondents were concerned about rent payments, in June this percentage dropped to 47 percent. The percentage of “I am not concerned at this point” has gone from 35 percent in May to 39.8 percent in June.

Opening the economy. Looking to the future, respondents in the June rent estimate study indicate a cautious outlook about opening the economy with nearly 35 percent choosing “better to be safe than sorry,” 49 percent prefer opening the economy in phases and 16 percent selecting “open it up completely.”

One month ago, this survey showed that nearly 54 percent chose “better to be safe than sorry,” 39 percent opted for opening the economy in phases, and 6 percent selected “open it up completely.”

Traffic & Signed Leases Up in Some Markets: Radix

As every state started opening in various ways come late May, Radix is seeing clear improvements in some MSAs in terms of traffic and leases (Atlanta, Austin, Orlando) and mixed results in others, according to its data reflecting May 20-27.

Phoenix, Houston and Dallas showed double-digit traffic growth week over week (WoW) in leases signed.

Nationally, traffic and leases are down for the week at 4.2 percent and 5.6 percent, respectively. Comparing this with data with 2019’s Memorial Day weekend, this represents “a pretty decent decline” nonetheless, according to Radix.

These positive results, however, are being offset with steep declines elsewhere. For example, most MSAs in California recorded declines in traffic and leasing, with Los Angeles leading that list.

Some data points, especially traffic and leases, could have been impacted by the holiday weekend, but in terms of net effective rents, “it is pretty clear that there is an accelerated decline in rents, according to Radix.

Occupancy and leased percentage are slightly up (9 bps) and slightly down (39 bps), respectively. YoY, “both occupancy and leased percentage are down but the pace of decline has slowed” during the past three weeks, according to Radix.

Atlanta is the first MSA to show YoY positive trends in both occupancy and leased percentage, according to the report.