Rent delinquencies surged in October compared to one month prior as the housing market continues to struggle with high mortgage rates, according to a new survey.
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As high mortgage rates continued to slow home sales and put pressure on prices last month, more than a third of small real estate businesses were unable to afford the rent on their offices, according to a new survey.
The survey, from small business networking company Alignable, specifically found that small real estate companies had a rent delinquency rate of 37 percent in October. That’s up from just 27 percent one month prior. Alignable’s report on the survey notes that this upward tick is not surprising “given the state of the housing market in many regions.”
The report ultimately points to interest rates and rent delinquencies as evidence of a “troubled housing market.”
The survey collected responses from 4,789 small business owners and was conducted between Oct. 15 and Oct. 27. Bloomberg first reported on the survey.
The results come amid widespread turmoil in the housing market. After two years of historically low mortgage rates — which at some points dipped below 3 percent — during the COVID-19 pandemic, the Fed’s efforts to tamp down inflation this year eventually drove rates above 7 percent. The result has been slowing sales numbers, as well as predictions that home prices will fall nationally next year and that some agents will leave the industry.
Multiple top real estate executives also recently predicted the downturn could last through 2023.
It’s unclear what impact the downturn will have on individual agents. The median gross income for the organization’s members in 2021 was $54,300, according to data from the National Association of Realtors. However, the data also shows that for Realtors with 16 or more years of experience, the median income was $85,000. Those numbers suggest experienced agents have managed to pull ahead during the recent boom years and thus presumably inexperienced agents are poised to be the hardest hit by the downturn.
NAR does not track monthly income data for agents, so it remains unclear how these numbers might have changed during this year.
But Alignable’s new survey does suggest that the real estate sector is feeling the pain from the downturn. That pain is also not limited just to real estate. Among other things, Alignable found that 37 percent of all U.S. small businesses were unable to pay their rent in October. Restaurants and automotive businesses were among the hardest hit, with 49 percent of enterprises in both sectors facing delinquencies. Other sectors struggling with rent include gyms, retail stores and construction companies.
States with high business rent delinquency rates include Massachusetts, New Jersey, New York and California. The report further notes that delinquencies are even higher in Canada, where 42 percent of small businesses were unable to pay their rent in October.
Factors for rising business rent delinquencies cited in Alignable’s report include higher rents, fears of recession, gas prices, supply chain issues and falling consumer spending. The report makes a special point of noting that “59 percent of small business owners taking this poll reported that consumers are spending less this month than” last month.
Speaking to Bloomberg, Chuck Casto — Alignable’s head of research — also said that at the root of the issue, small businesses are “basically being eaten away by inflationary pressures.”