May 12, 2020

Prices paid by consumers generally fell in April, but changes varied widely across categories. Mortgage delinquency rates remain low, but may be showing early signs of picking up. And landlords and their tenants alike are facing growing risks.

• Consumer prices fall sharply in April

  • The core consumer price index (which omits prices associated with food and energy) fell 0.4% in April from March, the largest one-month decline in the series’ history.
  • Food prices rose sharply, while prices for gasoline fell by more than 20% in a month.

• Past-due mortgages were near all-time lows heading into crisis, but delinquencies are up

  • Just 3.6% of loans were 30 days past due in February, according to CoreLogic, a record low.
  • 4.36% of loans were delinquent in the first quarter of 2020, according to the MBA, up 59 basis points from Q4 2019.

• Near-term risks to renters and landlords are mounting

  • Almost half of renters report problems paying their rent, bills or food costs in the last month, according to the Urban Institute.
  • Low margins, non-guaranteed loans and lack of direct government support place landlords in a vulnerable position.

So what?

The pandemic has prompted surges in demand for some goods, weakened demand for others and invoked major disruptions to supply chains — resulting in both sharp increases and decreases in prices for certain products in recent weeks. Today’s release of April consumer price index data – a key reading on the growth in prices for U.S. consumers – was the first official indication on what has happened to prices since the virus started to spread. What stood out was not so much the headline figure — which fell both from March and from April 2019 in large part because of a collapse in gas prices – but more so how the differences in prices for different goods have reacted. The report’s “Energy Index,” which measures spending on gasoline, natural gas and other fuels, fell 17.7% on the year – the largest 12-month decline since 2015. But spending on food and medical supplies surged. The report’s “Food Index” rose 3.5% in the twelve months ending April 2020, with prices for groceries rising 2.6% in April from March – the largest one-month jump in more than 46 years. Still, price growth has generally stalled as consumer spending has declined. The core measure of CPI – which omits food and energy prices – fell 0.4% in April, the largest one-month pullback in the series’ history. These are still early days, but so far prices have not spiked as a result of the pandemic.

The number of mortgages in forbearance continues to rise, putting the health of the mortgage industry under the microscope — the market was generally healthy prior to the pandemic, but two new reports offer more context. CoreLogic’s Loan Performance Insights Report found that 3.6% of mortgages were delinquent in February (defined as being 30 days or more behind on payments), down 0.4 percentage points from the same time last year. The number of loans in serious delinquency (90+ days behind) was just 1.2% — the lowest rate since June 2000. Meanwhile, the Mortgage Bankers Association’s National Delinquency Survey found that 4.36% of mortgage loans were delinquent in Q1, up 0.59 percentage points from the fourth quarter of 2019, suggesting that COVID-related delinquencies had already begun to mount in March. Serious delinquency, however, fell by 9 basis points (0.09 percentage points) over that time span. With the share of loans in forbearance rising, not to mention the devastating downturn in the labor market, it’s likely these measures will rise further — the MBA said loans in forbearance will be counted as delinquent in its next report.

As of May 6, a large majority of apartment households (80.2%) paid May rent, just below the rate that would be viewed as normal and an encouraging sign for a housing market fearful of a spike in rental delinquencies in the wake of major job losses. Still, rental market fears have not entirely subsided. Homeowners have been offered some forbearance and other relief through federal aid packages, but thus far relief for renters has not been explicitly included in any federal spending bill. Many — but not all — states have placed restrictions on evictions, but much like the mortgage programs, missed payments flow upstream and also place landlords in a vulnerable position. Landlords tend to operate on narrow margins, and the majority of their mortgages are not backed by any government entity, making it far more difficult to receive relief. A recent survey conducted by the Urban Institute found that almost half (47%) of renters experienced a “material hardship” in the last month, compared to less than a quarter of homeowners. Unemployment benefits and relief checks might soften the blow for some tenants, but those have an expiration date. When that relief runs out, it appears that renters and landlords could be extremely vulnerable.

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