tinue to prioritize their housing obligations and that apartmentowners and operators remain committed to meeting them halfway with creative and nuanced approaches, the reality is that thesecond week of September figures shows ongoing deteriorationof rent payment figures—representing hundreds of thousands ofhouseholds who are increasingly at risk,” said NMHC presidentDoug Bibby.
Another report from Rentec Direct that evaluates the impact ofCOVID- 19 on rent payments also gives further cause for concern.Its data has shown a consistent downward trend in the number ofrent payments received nationwide by property managers andlandlords, and the month of September has seen the biggestchange with a 35% drop in total rent payments received.
Ultimately, the problem for multifamily is that its fundamentalsare too strongly correlated to job losses for the sector to be completely resilient to the pandemic, according to comments JohnPawlowski, senior analyst of residential at Green Street made during a webinar the company held earlier this year.
The magnitude and velocity of the recent job losses is nothing that
institutional landlords have ever seen. Compared to previous down-
turns, “there are a lot more people exiting the labor force now.”
Another factor, which is not related to the pandemic but comes
at a very inconvenient time, is shifting demographics. They are not
as supportive of multifamily as they have been in other recessions,
Pawlowski said. “This will be the first year of a net decline of 25-to
29-year-olds in the country and a broader deceleration of 25-to-35-year-olds”, a trend that will lead to a more gradual recovery formultifamily, he said.
Also the multifamily supply pipeline was very full as it enteredthis latest recession. “There is a good two years of supply that needsto be absorbed, which will lead to an evaporation of landlord pricing power,” Pawlowski said.
All told, Green Street is predicting a 6% decline in multifamilyNOI for 2021, a deeper trough than earlier recessions, he added.
Other research highlights small but growing problems with themultifamily asset class.
Effective rents in the second quarter nationally declined by0.4%, according to a report from Moody’s Analytics REIS subsidiary—the first decline since the multifamily sector started its recovery from the 2008 to 2009 recession. Further, according to REIS, 41out of 82 major apartment markets recorded declines in effectiverents, compared with just seven such markets for the first quarter of2020 and zero a year ago.
And just as Green Street predicted, NOI is falling as well, according to the Freddie Mac Multifamily Apartment Investment MarketIndex. The index itself fell by 0.3% in the second quarter, whileNOI dropped by 1.2%, marking the first time in index historywhere AIMI and NOI were negative together in the second quarter.
AIMI combines multifamily rental income growth, propertyprice growth and mortgage rates to provide a single index thatmeasures multifamily market investment conditions. “The secondquarter is normally a strong quarter in terms of NOI growth,” thereport noted. “The quarterly contraction reflects the impact of theCOVID- 19 pandemic.”
As fundamentals weaken, apartment owners must also deal with anovel approach taken by the US Centers for Disease Control andPrevention—its national eviction moratorium that it ordered inSeptember and that is set to last until the end of the year.