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- [00:00]
A
Foreign. Hello and welcome to Slate Money Covid, our midweek update on the coronavirus crisis. I'm Felix Salmon of Axios. I'm here with Emily Peck of HuffPost. Hello, I'm here with Anna Chymowski of Breaking Views. Hello and welcome. If that is the right word, to April, it is now April, the first of April, and that means it's rent day. So we're going to talk all about rent and whether you should pay it coming up on Slate Money Covid. So it's April 1st, it's rent day. So let's talk a bit about rent day because obviously a bunch of people, millions of people have lost their jobs. They don't know when they might be able to start earning money again. And rent is due today. So Emily, if you've lost your job and rent is due today, what are the considerations? Should you be paying your rent or no?
- [01:12]
B
I hate to give financial advice to people, but most states and cities have said have put up eviction moratoriums. So if you, if you have very little money saved up and you've lost your job, even if you have the money for rent, I would say don't pay your rent because you need the money for food. And you're not going to get evicted.
- [01:32]
C
Right now probably, I would say definitely, like before you don't pay your rent, make sure that you are in a state where you have protections because if you don't, you can very easily be evicted if you don't. So I would just be very clear. I don't want to tell anyone not pay their rent and then they get evicted.
- [01:49]
A
I'm going to push back a little bit on the very easily bit. I think if you're in a state without protections, then you don't have state level protections and you can be evicted. I don't know how easy it is and I don't know how much that is going to be happening in the middle of the crisis. And I don't know what incentive landlords would have to evict people in the middle of a crisis because they're not going to be able to, you know, fill that empty apartment with someone else very easily.
- [02:20]
B
And we should say that the stimulus measure that just passed has 120 day ban on evictions for people who use Section 8 housing or anyone whose housing arrangements sort of touch on the federal government. So there is some protection there.
- [02:37]
C
Yeah. I mean, and I agree with you that I think the idea that you are going to be evicted like today or this week or even this month is probably unlikely. But if you have a record of not paying rent and you are in a state that doesn't have protections that could potentially hurt you down the line even once, all like the crisis is somewhat resolved. So that's why I'm just saying people should make sure that they know what's going on.
- [02:58]
A
Important to note, if you are in any way paying a below market rent, then once the crisis is resolved, if you were delinquent on your rent, then that's going to make it easier for the landlord to do what the landlord wants to do anyway, which is kick you out and replace you with someone paying more. Don't know what's going to happen to rents on the other side of this crisis. We don't know what's going to happen to a lot of things. As I've been saying all along, the size of the known unknowns has been exploding. And one of the big known unknowns is like, what on earth is going to happen to rents for demand for housing in dense cities? There's a huge number of things that we just don't know. And I kind of have this feeling that things will work themselves out in a very unknowable way in the future. But my gut feeling is to agree with Emily and to say that this is different, this crisis is different from a normal case where you lose your job. If you are, say, an event planner and you lost your job in December, with unemployment at 3.5%, then you would obviously pay your rent in January because you'd be like, well, I have a house, I need to pay rent and then I'll get a new job and then I'll continue to pay rent. That isn't the calculation anymore. If you are an event planner and you lost your job in March, do you pay your rent in April? Well, you can. You probably have enough savings saved up to pay your rent. But when are you likely to be able to get a new job, especially as an event planner? And how long will those savings last and what do you really need them for? And what's the chances of getting a new job when unemployment is more like 10% than 3%? The calculations have changed significantly just in a few weeks. And I think that means that the way you think about these things has also changed.
- [05:01]
C
I mean, I think that that's definitely true. I mean, I do think we are in just uncharted territory. Although I would just say that similarly, because we're in uncharted territory. We don't know if how. We don't know how long this is going to last. We don't know if as soon as the crisis is officially over, then all of a sudden protections are just going to go away. So I guess I would say that yes, people should think about this differently. People should consider how much savings they have. People should look at what the state and federal protections are. But yes, I do think that this is one of the instances where potentially not paying your rent, making sure you're kind of saving that liquidity because you might need it to pay for things like food, is an actual possibility in a way that it might not have been, as you say, in just like a normal. Would you lose your job or even a normal recession?
- [05:45]
B
Yeah, I mean, I've been talking to people that have lost their jobs and don't really quite have enough money to make rent today. Or maybe they, they don't think they'll have it for May 1st. And some of these people are contemplating getting some of these jobs, these seasonal jobs that are, I mean, a lot of people have lost jobs, but Amazon, Target, Kroger, supermarkets, blah, blah, blah, hundreds of thousands of seasonal jobs have opened up for some of these like very desperate people. So a lot of people are now facing this choice like, oh, I could pay my rent and get at like one of these seasonal hourly jobs at a supermarket and put the health of my health and my whole family's health at risk to pay the rent. And I think that's a bad idea.
- [06:27]
A
Well, I think that, you know, it's a little bit interesting because these things are path dependent, right? If you have always been a supermarket cashier or if you have always been working in an Amazon warehouse, like, yeah, you are putting your health at risk just as much. And so does that mean logically that you would say it's a bad idea not to quit your job doing that right now? So, you know someone like, clearly there are these jobs and they are going to be filled by humans. The only question is which humans are going to fill them? Right.
- [07:02]
C
I just.
- [07:02]
B
The choice to not pay. I think it really makes sense not to pay your rent right now.
- [07:07]
A
So my next question is, does the same sort of logic apply to mortgage payments as to rent payments or is mortgages a little bit different? Partly because in a weird way, a large chunk of your mortgage payment, you're just paying yourself. You're moving money from, you know, liquid assets to home equity.
- [07:31]
C
Well, I mean, depends on what stage you are on your mortgage. If it's early, you're pretty much just paying interest. You're not hitting any of the principal. But yeah, I mean it's, it's again a massive unknown. I mean, I would normally say that if you can you continue to pay your mortgage. I mean, like, I think normally that's a, that's a pretty good rule. Now if you are in a position where you know you've lost your job, you are very concerned that even with the federal money coming in, you're going to have a hard time making ends meet, then I think that is a situation where, you know, you contact your bank though. I mean, I just would caution the idea of like just not paying without checking other things out because that could put people very vulnerable position after this is all done.
- [08:11]
A
And yes, in the case of mortgage payments, I think it is even more important to talk to your bank first if you possibly can give them a ring. Now I would definitely advise in the case of rent payments also that you talk to your landlord first. It's much better to try and go in with your eyes open to understand what kind of programs they have for people who are affected by the crisis to understand how mean and nasty they're going to be before you don't pay your rent. Go in with your eyes open to the degree that you can. With banks, it's the same thing. Talk to them first. See if you can get permission to do this, which a bunch of banks are doing, that would be great. The problem of course, being that all of the phone lines are massively overloaded and just getting through to the banks is incredibly difficult.
- [08:57]
B
Some of the banks, like I've, I've gotten already emails from my bank and my mortgage lender saying like we will work with you kind of stuff. So banks are sort of being proactive on this. So you might like check your inbox honestly and see if you got any messages from your lender already.
- [09:15]
A
Can I encourage all of the Slate Money listeners to play a little game, Go into your inbox and do a search for the words here for you and see how many brands have sent you emails over the past couple of weeks saying that they're here for you, which those of us who, who are Succession fans will immediately recognize as the slogan, the disastrous slogan that Tom Wamsgans came up with.
- [09:41]
B
Succession.
- [09:43]
C
On the other side of this, I think it. You also have to think about whether you have, if your mortgage or your rent is with a either very large bank or very large company. My guess is they may actually have more flexibility to work with you. You know, if you're just like an individual whose income is dependent on people paying them rent because they own one building or they, I mean there are a lot of, In New York City you have that all the time. You have people who own like one apartment or two. You know, I mean, like, and they're so they may have less flexibility if they're also depending on that rental income.
- [10:10]
A
So, so that was the next thing that I wanted to talk about was the, the second order effects of this. There are, you know, regardless of what advice we may or may not give, you know, on Slate Money, there are going to be a large number of people who simply cannot afford to make rent or mortgage payments this month and certainly next month. And that means that a large amount of cash flow is going to stop going to landlords and banks and those landlords are not going to be able to pay their mortgages and the bank's not going to be able to, you know. Well, I guess banks is a little bit different because it just mostly feeds into mortgage backed securities. And then you can just let the bondholders worry about the, the mortgage payments on that front. But at least in terms of the landlords needing to make their mortgage payments and whatnot, do the same things apply that you just kind of, if you can't make the mortgage payment from your rent payments, you just work it out with your bank just like a renter would or a mortgage holder would.
- [11:10]
C
No, it's true. I just think it's going to be very messy. I mean, like, we've already seen this, we've already seen this where like, you know, because mortgages are, as you kind of said, like, you know, the mortgage market in the United States is absolutely enormous and it underpins so many other things. And having the Fed step in and buy mortgage backed securities is definitely helping that. But you know, if all of a sudden you don't have a ton of mortgage payments coming in, you know, that can definitely have some serious effects for people who are using these securities as the basis for other lending. Like it can just. When you're talking about a market as big as the US Mortgage market, this could have some serious effects down the line.
- [11:49]
B
I mean, how big is like say everything goes back to normal in two months or something and people can start paying all their monthly bills again if we just skip a couple. Is it that big of a deal?
- [12:02]
C
The reality is it's like if everybody down the line, like if at each point in the system, including very much at like the Fed and the treasury, like if everyone's kind of on board with this so that like everyone keeps kind of getting forgiveness, then that's probably true. I guess I just, I say this with a lot of skepticism in my voice because the mortgage market is connected to so many other parts of finance that you don't even think about. So, so it's like when you hit one thing, it moves this other switch and then that moves this other switch. And so hopefully it will be fine. Like, hopefully, you know, we have enough federal money just like flooding into the system that everyone can just be like, okay, let's just wait a month or two. Now if this starts to go six months, nine months, I mean, then that becomes obviously much, much bigger deal.
- [12:47]
A
But to answer your question, Emily, yeah, in an ideal world, the Fed could just press a button and put the entire sort of financial economy on pause for a month or two and then restarted again where it was and no harm. That's not actually possible. The financial world is based on flows and those flows are going to keep on flowing. And so you need to work something out. And they're really doing a very, very good job. I think this is more or less unanimous. It's hard to come up with a unanimous opinion on anything related to the crisis. But I think everyone is agreed at this point that the Fed has done a good job trying to provide whatever kind of liquidity they can to keep the markets going to keep those flows flowing. So yeah, it's tough. At some point I'm going to start thinking a bit more about this idea of an arrears economy that basically you can start up again in a couple of months with a bunch of people in default or companies in default or individuals in default on previous obligations and whether you can have a functioning economy with just those sort of prior arrears just kind of sitting there in the background and how long you can do that. I think it's a super interesting question. In a normal world, once you're in default, like all manner of nasty things happen and you wind up going into bankruptcy or closing down or something like that. I suspect this time around again things might be different, but we can talk about that some other time.
- [14:11]
B
Yeah, I think we just, we have to agree.
- [14:13]
C
I feel like once forgiveness, people stop dying and people stop losing their jobs eventually. This is going to be a fascinating experiment to look at what happened, but obviously far down.
- [14:23]
A
But in the meantime, guys, like if you have the savings, I mean, this is the time to use your savings. This is why people have an emergency fund. This is definitely an emergency. On the other hand, if you are looking at those savings and wondering how you're going to be able to, like, feed yourself if they're, you know, and as a million people say roughly every week, you know, 40% of Americans don't have $400 in cash, then, yeah, at that point, I think rent becomes a much lower prior.