Rise in Delinquent Mortgage and Rental Payments Will Weigh Heavily on the Economy

With millions of Americans having recently entered unemployment, it was no surprise that many families were going to have difficulty paying rent and mortgages. But just how much difficulty they would have has surprised even pessimistic observers.

Over 30% of US apartment renters failed to pay their April rent in the first week of April. That’s a shocking statistic, one that indicates that there will perhaps be millions more people showing up among the ranks of the unemployed over the coming weeks.

It also is shocking for landlords, who are dependent on their rental income stream to pay property taxes, mortgages, and other bills. Losing potentially up to 30% or more of their monthly income could significantly harm them, leading to potential short sales or foreclosure, which wouldn’t be good for the renters who would then acquire a new landlord, either.

The number of mortgages in forbearance has also increased significantly in recent weeks, rising over 1,000%, from 0.25% to 2.66%. While that number may seem small right now, it is likely only the tip of the iceberg. Many analysts expect that up to 30% of US households may stop paying their mortgages as this economic shutdown continues.

The effect of renters not paying rent and homeowners not paying mortgages will put increasing pressure on banks too, eroding their financial position, destroying the value of mortgage-backed securities and other asset-backed securities, and putting us right back to where we were in 2008, with existential threats to the banking system as a result of increasing delinquencies. The longer this shutdown goes, the worse the effects will become.

Those investors fortunate enough still to have jobs, who may not have been affected by the shutdown to the extent that many others have been, need to realize that the worst effects of the shutdown haven’t been felt yet. They may get lured back into stock markets by the hope of a V-shaped recovery, only to have their hopes dashed as markets plummet back to earth, a la 2008.

The reality of the situation is that we’re on the brink of a recession or depression that will make 2008 look like nothing. Unemployment is probably already at double digits, and could easily surpass Great Depression levels. GDP will contract significantly, almost definitely into double digits, and could fall 25% or more. And we’re still in for at least another month of this or more, making it highly unlikely that the economy will make it back to any semblance of normality this year.

Knowing that markets will perform poorly this year, have you made moves to protect your assets? Are you going to invest in gold and silver to protect your retirement savings, cash out of your stocks and bonds, or just sit tight and hope that you’ll have enough time to recoup your losses before you retire? The decisions you make today could have a major impact on your quality of life for decades to come.