The stock market had its worst crash since 1987 on Monday as many are worried the U.S. economy faces a treacherous road as it deals with the outbreak of the coronavirus.
For those investors looking to predict the future, google trends data may be indicative of significant trouble for the consumer, threatening a record high U.S. housing market in particular.
As hourly employees face an unprecedented crisis, the economic catastrophe that the coronavirus shutdown is brewing is all too real for the most at-risk workers in society . There is plenty of speculation that huge numbers of workers who live paycheck to paycheck will struggle to make ends meet as they are either fired or have their employment suspended without pay.
While there may be few homeowners among this group, they are integral to the housing market. In 2019, more than $500 billion in rent was paid in the U.S. , and many homeowners could not pay their mortgages without the reliable glut of tenants and limited supply of homes. Unfortunately, Google data suggests things are unraveling.
Two extremely concerning internet searches have skyrocketed over the last two weeks. The first and arguably most worrying is the search for “unemployment benefits”.
As you can see from the chart below, it appears that layoffs may be piling up as more and more people explore if they are eligible for government assistance.
The U.S. housing market has been supported for many years by the confidence that there was a well-funded army of renters, particularly in urban markets, as unemployment has trended close to record lows. This pillar of the United States economy may be eroding.
In isolation, this could, of course, be an anomaly. Unfortunately for homeowners, a more direct search has doubled during this coronavirus fueled market slowdown.“Can’t pay rent”.
This may be a clear sign that the housing market is in for a direct hit. Given how expensive house prices are, there is little room for owners to offer tenants leeway as they must be able to cover their pricey mortgages to avoid foreclosure . As a result, the rental market chain can quickly break down.
This is where things get more concerning, as a large number of hourly workers rent more affordable apartment homes. These are increasingly owned by institutional investors, as Gord Collins reported in ManageCasa’s 2020 review of the U.S. rental housing market ,
The share of mid-sized apartment properties owned by individuals has dropped from nearly two-thirds in 2001 to about two-fifths in 2015. Older apartment buildings, in particular with low rents, are attractive to institutional investors who like the profit potential of these after an upgrade. And they may be the only buyers with the cash to rehab the buildings which are often run down and costly to operate.
What makes this trend concerning is that investment funds do not wait around to see if their tenants can bounce back. Real Estate funds are aggressive and fast-moving . If they don’t think the returns are there, they will dump their holdings en-masse and move on to something else.
There is a silver lining to all of this, and that is the Federal Reserve’s decision to cut interest rates, which could help stave off housing market crash by theoretically allowing owners to lower their payments through refinancing. Unfortunately, the Fed’s move has so far failed to move mortgage rates much lower .
As unemployment rises, house prices and therefore, rental prices must naturally correct. Real estate investors will be hoping that all these google searches are precautionary, or they could have a big problem on their hands.