Economy Continues Positive Momentum, but Easiest Gains May be Behind Us
|Nonfarm payrolls increased by 1.4 million net new jobs during August, nearly in line with July’s gains and a sign of continued positive momentum. While the momentum is positive, the recovery may have settled into a long-run trajectory in the absence of an effective vaccine. Globally, nine vaccines are in Phase 3 trials, conducting large-scale efficacy tests. Three of the vaccine candidates are in the Phase 3 trials in the U.S., though one of the trials was halted today due to standard review processes following a suspected adverse reaction by a program participant in the U.K.
As progress continues on the vaccine front, U.S. Consumer spending edged up for most of August after largely stalling during the prior month. During this period, the number of job postings that require only some education experience also picked up, though hiring for more skilled positions remains well below pre-pandemic levels. Both U.S. ISM indices remained in expansionary territory in August, with the manufacturing index increasing 180 bps to 56.0, while the services index took a modest step back to register at 56.9 for August.
Employment levels now stand 7.6% below pre-pandemic levels on a seasonally adjusted basis. If employment gains continue at the pace set in August, nonfarm payrolls could return to pre-pandemic employment levels by the start of Q2 2021 barring major economic setbacks or an increase in permanent job losses.
Growing numbers of permanent job losses could prolong this timeline, however, as they may signal that the easiest part of the recovery may already be in the rearview mirror as more businesses close for good. People who were let go permanently—rather than temporarily laid off—made up 40.2% of unemployed workers in August, compared to only 12.4% in April, and the number of people permanently separated from their job has steadily increased since March.
Monthly Change in Nonfarm Employment
Steady Rent Collection and Record Lease Renewal Rates Underscore Multifamily ResilienceThe National Multifamily Housing Council (NMHC) reports that 92.1% of residents at professionally managed properties made a full or partial August rent payment by the 27th of the month, highlighting the resilience of the sector nearly six months into the pandemic. Late August’s payment rate lags prior-year figures by only 1.9 percentage points even as expanded unemployment benefits expired at the end of July. At the same time, a recent report from RealPage indicates that the share of renters opting to renew their leases continues to reach all-time highs as renters have proven less interested in relocating in the midst of a pandemic. The renewal rate in July set an all-time high for the month at 53% after similar monthly highs were reached during the earlier part of the pandemic. In some metros, RealPage reports property managers have offered lower rents to residents with expiring leases in order to maintain occupancies. Looking ahead, the U.S. CDC’s decision last week to place a moratorium on evictions through the end of the year is unlikely to have a dramatic impact on the stability of the multifamily market. The measure is limited to renters that sign a robust attestation that they meet certain income requirements, have coronavirus-related hardships that have affected their ability to pay rent, and are making a concerted effort to make as much a payment as possible. The attestation requires acknowledgment that the regulation does not cancel nor forgive rents, which means renters will still be required to make up any missed payments. The CDC’s eviction moratorium does not, however, address the root causes of housing instability as it does not provide for direct assistance to individuals and households, nor does it address the transfer of burden to property owners. Congress remains at an impasse on these issues, and it remains to be seen whether policymakers will come to a resolution in the near future.
Delinquency Rates and Distressed Activity Remain Muted Across Most Property Types
|Commercial mortgage delinquency rates continued to demonstrate stability during the second quarter according to the Mortgage Bankers Association (MBA). Except for retail and hospitality sectors, delinquency rates for all property types remained in the single digits. MBA’s CREF Loan Performance Survey found that 93.6% of multifamily mortgages were current as of August 20th, down only a marginal amount of basis points compared to June and July. Multifamily FHA and GSE loans led the pack at 97.5% and 98.7%, respectively. CMBS performance, which is overweight to hospitality and retail properties, saw delinquencies increase to 12.6%, which is 60 basis points over the prior month.
Real Capital Analytics corroborated the resiliency of several commercial real estate sectors by highlighting the low volume of distressed sales during Q2 2020. Across all property types in the U.S., there were only 46 distressed sales over $2.5M during the quarter. In the multifamily sector, distressed sales remained even muted with only 0.3% ($38.2 million) of all multifamily transactions for the quarter qualifying as distressed deals. The industrial and office sectors performed at similar levels, with distressed sales making up 0.4% ($44.5 million) and 3.1% ($365.5 million) of all transactions, respectively. The hospitality sector, in contrast, continues to experience higher levels of distress with 7.8% of transactions qualifying as distressed sales.
Manageable delinquency rates and low levels of distressed sales activity several months into the pandemic highlight the resilient nature of several commercial real estate sectors.
The Weekly Briefing - September 8th, 2020
The Weekly Briefing – September 8th, 2020:
In This Week’s Brief:
- Economy Continues Positive Momentum, but Easiest Gains May be Behind Us
- Steady Rent Collection and Record Lease Renewal Rates Underscore Multifamily Resilience
- Delinquency Rates and Distressed Activity Remain Muted Across Most Property Types