US Vacancies & Consumer Credit Delinquencies at Record Highs

Reuters writes U.S. consumers fall behind on loans at record pace:

Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt and home equity loans to all-time highs in the first quarter as a record number of cash-strapped consumers fell behind on their bills.

Delinquencies on the value of all card debt soared to a record 6.60 percent from 5.52 percent in the fourth quarter as more cardholders relied on plastic to meet day-to-day expenses, the American Bankers Association said.

Late payments on home equity loans rose to 3.52 percent from 3.03 percent, and on home equity lines of credit climbed to 1.89 percent from 1.46 percent.

A broader gauge showing late payments on eight categories of loans rose for a fourth straight quarter to a new record, edging up to 3.23 percent from 3.22 percent. That rate actually understates consumer pain because it excludes credit cards. The ABA tracks loan payments that are at least 30 days late.

“The biggest driver is job losses,” ABA Chief Economist James Chessen said in an interview. “When people lose their jobs or work fewer hours, it makes it that much harder to meet their obligations. Unfortunately, we’re going to see higher job losses in the next year, and I expect elevated delinquencies.”

The ABA represents most large U.S. banks and credit card companies. Tuesday’s data are a bad sign for them as they prepare to report second-quarter results starting next week.

While improved capital markets may boost the bottom lines of some, analysts expect lenders such as Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Capital One Financial Corp and American Express Co to suffer higher credit losses, especially in cards.

…and U.S. apartment vacancies near historic high:

The vacancy rate for U.S. apartments reached its highest level in more than 20 years in the second quarter and could soon exceed record highs if the recession persists, real estate research firm Reis Inc said.

The national vacancy rate rose to 7.5 percent, the highest since 1987 and an increase of 1.4 percentage points from last year, according to a report Reis released on Wednesday. The record high was 7.8 percent in 1986.

“We are reaching that historic high very quickly,” said Victor Calanog, Reis director of research.

The second-quarter vacancy rate was 0.20 percentage point higher than the prior quarter and up from the cyclical low 5.5 percent reached in 2006, Reis said.

The U.S. recession has taken a toll on the U.S. apartment market, which largely relies on employment growth to fuel demand. Its largest tenant group, 18- to 24-year-olds, has been hardest hit by rising unemployment. Meanwhile, the apartment buildings sector has led all commercial real estate categories on loan defaults.

I know a few people who lost their jobs in San Francisco and had to move to other places to find new employment and/or stay with family for a while and look for a new job. The startling effects of this are only just beginning to show in the rental market.

Just an example: A friend of mine who lives in the same complex as I do used to pay $2,600 for a 1 bedroom / 1 bathroom apartment. Now that his lease was up for renewal he checked with the landlord on other options in the same complex. Without the slightest qualm they told him to move into a 2 bedroom / 2 bathroom apartment which is becoming vacant now, for $2,550.

As I already mentioned in January, we have reached the peak. Expect rents to continue to drop sharply in the months and years to come, especially in the insanely overpriced cities San Francisco and New York.


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