A Wave of Evictions Could Be on the Horizon

Once the nationwide eviction moratoriums eventually expires, it could trigger a wave of apartment evictions across the US. According to research from Freddie Mac, 9 million Americans have accrued rent debt during the pandemic. The Mortgage Banker’s Association estimates that rent debt totaled more than $9 billion at the end of the third quarter 2020.

Rent payment issues are directly linked to widespread unemployment during the pandemic. Unemployment hit 15% in April. The initial government support—which included an additional $600 in weekly unemployment benefits and a $1,200 stimulus check—helped to offset some rent payment issues, but those benefits expired in July leaving many renters unable to make rent payments.

The new stimulus bill could be arriving just in time. Research from the Philadelphia Fed has estimated that if households in need receive stimulus, only .4% of renters will face rent debt and potential eviction. However, without the stimulus, rent debt occurrence jumps to 10.6%, increasing the probability of widespread evictions.

With eviction moratoriums in place and renter challenges making rent payments, apartment demand decreased 60% in the second and third quarters of 2020, the height of the pandemic. The trend quickly flipped in the fourth quarter. Demand increase by 115,000 units, about 10% below demand at the end of 2019.

As rental demand increased, lease renewals decreased slightly to 51.4%, below the annual average of 53.4% in 2019. This also suggests that move-outs are accelerating. However, renters willing to sign a renewal are seeing an increase in rate, up 60 basis points from the third quarter but still below the rate increase for renewals in 2019.

The good news: the multifamily market entered the pandemic on solid ground. National apartment vacancy was a low 4.4% at the end of the first quarter and rent growth was positive. During the depths of the pandemic, the apartment vacancy rate increased nominally to 4.7% before falling again in the third quarter to 4.3%. Nationally, rents fell .9% in the second and third quarter by some estimates. Yardi, on the other hand, reports a rent decline of .5%.

Rent collections have remained with 1% to 2% of prior collections, although data from the National Multifamily Housing Council shows some month-to-month volatility in rent collections. In December, rent declined of 24% compared to March. Payments had improved since September 2020, when collections were 35% below March and a record low for the pandemic. In October collections were down 28%, and in November, they were 27% below March.