Zillow Market Pulse: July 8, 2020

July 8, 2020

On-time rental payment rates declined in early July. After a two-week hiatus, growth in for-purchase mortgage applications resumed. And households are increasingly worried about their near-term finances.

• Rental payment rates have started to slide

  • 77.4% of apartment households made a full or partial rent payment by July 6, according to the National Multifamily Housing Council (NMHC), down from more than 80% at the same point in June.
  • The survey tracks payment rates on 11.4 million professionally managed apartment units nationwide.

• Purchase mortgage applications pick back up

  • For-purchase mortgage activity was up 5% last week from the week prior, and is 33% higher than this time last year.
  • The series has recovered strongly from April lows, but the pace of growth stalled in recent weeks prior to this recent acceleration.

• Census: households worried about their future income, ability to make housing payments

  • 25.9% of households said they either missed last month's rent or mortgage payment, or doubt they can make their next one.
  • 34.9% of households expect their income to fall in the next month, up from 32% last week.

 So what?

The decline in rental payment rates as measured by the National Multifamily Housing Council is a warning sign for the housing market and broader economy, and the latest example of what could be at stake if expanded unemployment benefits, eviction moratoriums and other aid programs are not extended past existing deadlines. The 3.4 percentage point decline in July's payment rate compared to this point in June isn't a huge red flag — at least, not yet. There is still plenty of time left this month for tenants to make their landlords whole, and rent payments in both May and June were strong towards the end of the month. But with unemployment benefits due to expire, a similar rally in July seems less likely. As part of the initial response to COVID-19, many state governments imposed a temporary prohibition on evictions and a federal eviction moratorium was implemented for all renters living in properties with government-backed mortgages. But the federal mandate only covers about a third of the nation's renters, and many states have begun to roll back their previously-imposed eviction bans. Data also suggests that enforcement of the state-level rules has been uneven. Should additional financial relief not come, there's a chance that this growing trend could snowball into a full-fledged crisis in the rental market, and potentially lead to a spike in homelessness.

After stalling the past couple weeks, the reacceleration of for-purchase mortgage applications was welcome news for the housing market and reinforces the trend of buyer demand remaining firm as spring turns to summer. A large factor in this renewed upward momentum was (of course) average mortgage rates, which continue to plumb new lows. Applications activity will always be dictated by rate movements, but the spread of the coronavirus and whether the federal government passes another stimulus package will also influence the direction of rates in the immediate future. Additional fiscal stimulus would benefit mortgage applications activity by helping shore up household balance sheets and buoy buyer confidence, but it remains to be seen whether additional relief will materialize. For now, it appears that demand for housing remains steady and competition for the limited number of homes available for sale is still red hot.

The latest Household Pulse Survey from the Census Bureau suggests that after weeks of growing confidence, people are growing wary of their income prospects and their ability to make monthly household payments. Almost 35% of households said they expect a loss in income in the next month, up from 32% in the previous week and a reversal of the trend from the past two months. Some metro areas – including Houston and Miami — have seen notable gains in this metric over the last two weeks, possibly because of the surge in coronavirus case volumes in those areas. The survey, an excellent predictor of June's job gains, also showed a net loss of 1.3 million jobs nationwide over the last two weeks — a big red flag. Finally, just over a quarter of households said they either missed last month's rent or mortgage payment or have doubts about making the next one, up 3.8 percentage points from last month. That trend will almost certainly continue should enhanced unemployment benefits not be extended past this month.

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