How COVID-19 Has Financially Impacted Americans

By 

Dr. Francesca Ortegren

Updated 

July 27, 2020

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As of April 6, 2020, the novel coronavirus has infected at least 1.25 million and killed over 65,000 worldwide since it first appeared in November of 2019. Its rapid spread has not only devastated healthcare systems, but also economies across the world.

Nearly 300 million people in 38 states are mandated to stay at home, meaning non-essential businesses are losing money because people are spending less or they have been forced to shut their doors for the time being.

According to previous research by Clever , Americans were $14 trillion in debt before COVID-19 swept across the nation. That debt compounded with an expected 32% unemployment rate and an eerie air of uncertainty means the U.S. economy will likely take a hard hit. In fact, a report from McKinsey & Company suggests that the U.S. and European economies might not recover for years under worst-case models.

In short, America's financial and economic stability is being tested, so Clever set out to investigate how homeowners and renters are managing these new challenges. To do so, we surveyed 500 homeowners and 500 renters on March 31, approximately two weeks after the first state-wide mandate to stay at home was issued in California, to learn exactly how COVID-19 is affecting Americans financially.

We were particularly interested in how people's jobs, real estate ventures, ability to pay down debts, and financial wellbeing in general were impacted by the economic downturn resulting from the novel coronavirus.

These early signs are troubling:

50% of Americans reported their savings will run out by the end of April.

The survey was conducted shortly after the novel coronavirus made an impact in the United States. More specifically, all respondents were surveyed on March 31, approximately two weeks after the first state-mandated limits on gatherings went into effect.

JUMP TO SECTION

General Insights

  • Half of Americans believe their savings will run out before the end of April
  • An estimated 5.56 million jobless claims were filed in the last week of March, 2020 — the largest weekly increase in American history
  • 27% of Americans share financial responsibility with someone who lost their job as a result of COVID-19. Nearly one-third also lost their jobs.
  • 25% of Americans have taken on additional debt due to COVID-19, and 28% of those who have already taken on additional debt as a result of COVID-19 have borrowed over $2,000; 5% have borrowed over $10,000
  • 75% of Americans believe that the economic effects of COVID-19 will be worse than those of the 2008 Great Recession
  • An overwhelming majority (96%) of Americans said social distancing is a necessary precaution.
  • Counter-intuitively, nearly 40% think stay-at-home and shelter-in-place measures are excessive even though 96% of respondents reported practicing social distancing

Homeowner Insights

  • 30% of homeowners had less than $1,000 in an emergency fund prior to the COVID-19 outbreak, and only 9% believe their savings will last the recommended 3-6 months
  • 22% of homeowners don't have enough in savings to cover their mortgage for one month
  • 27% of homeowners are worried about defaulting on their mortgages
  • 55% of homeowners who planned to sell their home in the next 12 months either took their home off the market or are holding off on listing for sale as a result of COVID-19
  • 16% of homeowners have reduced or suspended mortgage payments through an agreement with their lender, and 12% of homeowners are behind on mortgage payments as a result of the coronavirus

Renter and Homebuyer Insights

  • Nearly half (46%) of the renters we surveyed said they have less than $500 in emergency funds
  • 45% of renters don't have enough in savings to cover their rent payment for one month
  • Over 80% of home buyers are delaying purchasing or are now planning to spend less due to COVID-19
  • Nearly 40% of renters are concerned about evictions as finances tighten but only 11% have rent forgiveness or reduction plans with their landlords

Homeowners Haven't Saved Enough for This Crisis

According to experts, people should save enough to cover their expenses for about 3-6 months. A survey by the Bureau of Labor Statistics indicates that the average homeowner spends about $5,935.67 each month, so homeowners should have about $17,300 - $35,600 set aside to pay for their normal expenses for 3-6 months without any additional income.

The homeowners in our survey are behind the curve, with 30% claiming they had less than $1,000 in an emergency fund prior to the COVID-19-related lockdowns. And only 11% had between $10,000 and $30,000 in savings.

Homeowners are at greater risk of becoming delinquent or defaulting on their mortgages due to stay-at-home mandates. While many recreational and leisure expenses aren't possible during lockdowns, almost 40% of homeowners said they will run out of savings in less than 1 month if their spending and income stay the same as it is now.

In contrast, only 9% of homeowners think their savings will last them the recommended 3-6 months.

The most recent government mandates suggest stay-at-home measures should continue until at least the end of April, but if lockdown measures are extended much longer, many homeowners are at risk of getting behind on mortgage payments.

Note that 65% of the homeowners we surveyed said they were eligible to receive up to $1,200 from the federal government as part of the new stimulus bill (an additional 25% weren't sure whether they qualified). Those homeowners might benefit from the extra money in that they might be able to pay their mortgage and some bills for some time.

Some people will receive that money quickly if they signed up for direct deposit when they filed their 2018 or 2019 tax returns or receive social security benefits through direct deposit from the government. But paper checks will take longer: Checks will get mailed between April 24 and September 11, 2020, depending on the taxpayer's income. Those with lower incomes (less than $10,000 per year) will get checks first.

Sellers Are Taking Their Houses off Market

Of the homeowners who were looking to sell their homes in the next 12 months, 85% changed their plans to sell as a result of the pandemic.

Nearly half already had their homes on the market and either pulled the listing (23%) or were forced to drop the listing price (27%), while an additional 31% of owners are holding off on listing their home for sale. In fact, only 15% of home sellers said the pandemic had not affected their plans to sell.

Our survey data provide early signs that people's financial situations will likely impact the housing market in the coming months — a trend that is supported by larger data sets, as well.

According to data from Realtor.com, for instance, there were 15% fewer active and 6% fewer new listings in March 2020 than there were in March 2019. The number of owners who dropped the listing price of their homes increased 3% between February and March this year, too, both hinting at early signs of a downturn in the market.

Home Buyers Are Pulling Out of the Market

With fewer home listings recently, buyers can't be certain about what is going to happen to the market in the coming months. It's possible that sellers are in a tight spot and need to get rid of their homes even if that means taking a lower offer; but fewer homes for sale could drive up prices.

That uncertainty coupled with the financial turmoil many Americans are experiencing as a result of COVID-19 has caused many potential home buyers to make concessions. Nearly one-third of renters we surveyed said they were planning to buy a home in the next 12 months, but only 16% said their plans haven't been impacted by the pandemic.

Another 55% have either delayed their search (48%) or completely stopped (7%) looking for homes as a result of the coronavirus outbreak. Some buyers, however, see this as an opportunity to find a bargain: 28% are still searching for homes, but are looking for cheaper prices.

Considering 27% of sellers said they've already dropped the listing price of their home, buyers willing to continue searching for homes might be able to get more for their money.

Homeowners Are Suspending Their Mortgage Payments

The swift change in economic prosperity across the country spurred the development of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which protects homeowners.

Under the CARES Act, owners can request mortgage forbearance wherein they suspend or greatly reduce their mortgage payments for up to 180 days. People with mortgages backed by the federal government don't incur any additional fees or penalties for forbearance.

Nearly 16% of the homeowners with a mortgage said they've made agreements with their loan servicing companies to suspend or reduce their monthly payments for now.

An additional 12% of homeowners are behind on their payments as a result of COVID-19 but don't have an agreement with their lenders in place at the moment. Those homeowners might have gotten behind on their payments before the stimulus package went into effect, meaning they can still make arrangements with their lenders for future payments.

However, some mortgages — specifically those that aren't backed by the federal government — don't qualify for relief under the act. Lenders can choose to approve forbearance requests, but aren't required to do so.

For owners in the latter case, foreclosure is a risk, but not an imminent one as the CARES Act placed a moratorium on foreclosure for 60 days from March 18.

Renters Are Woefully Unprepared for an Emergency

Like homeowners, renters just aren't saving enough. Renters, though, are even less prepared than homeowners. Compared to homeowners, renters we surveyed were twice as likely to report that they'd never had emergency savings.

According to the Bureau of Labor Statistics, the average American renter spends approximately $3,656.25 each month. To be prepared for an emergency, people should have about $10,969 to $21,938 (or enough to cover 3-6 months of expenses).

Nearly half (46%) of the renters we surveyed said they have less than $500 in emergency funds, much less enough to cover months of expenses. In fact, 50% of renters said they either never had emergency funds or already ran out. An additional 11% can't make it a month with their current expenses and income.

Considering 25% of renters lost their income due to COVID-19, many of those we surveyed may be struggling to pay for the essentials if the safety measures taken by many states continue beyond April.

One in Four Renters is Struggling to Pay Rent

A lack of savings on top of diminishing job security has led one-third of renters to be more worried about being evicted now than they were prior to the COVID-19 pandemic.

The CARES Act includes some protections for renters; particularly, there are moratoriums on evictions and late payment penalties for 60 days at the federal level. While this allows renters some leeway in their spending, not all rental properties fall under the law, meaning many renters are at the mercy of their landlords in some cases.

More specifically, only rental properties that are federally financed (i.e., their mortgages are federally backed or they're low income designated housing) are covered. So some renters could incur late penalties or risk if they aren't able to pay.

It's important to note that many local governments have similar mandates for all landlords, regardless of whether their properties fall under the provisions of the CARES Act. For instance, St. Louis, MO has enacted a moratorium on all evictions.

Many landlords do make concessions for their renters during this tough time: 10% of the renters we surveyed said they had either reduced or suspended their rent through an agreement with their landlord.

Another 13% haven't paid rent but don't have any agreement in place.

Delays in payment — regardless of whether there's an agreement between landlords and tenants — can put small landlords in a tight spot as many still have at least one mortgage payment to consider.

Ben Mizes, Clever's CEO and a landlord with 22 apartments with a mix of affordable housing and high end apartments, said over 30% of tenants in his affordable housing have asked for relief, compared to none in his luxury apartments.

Mizes said that, "this is illustrative of the crisis as a whole, with many lower-paying jobs being cut, ultimately hurting the people who need their paycheck the most." His property manager is supporting tenants by helping them find work, apply for assistance, and stalling evictions.

Landlords whose rental properties are under federally backed mortgages are able to request forbearance if their tenants are unable to pay, relieving some potential fallout for small landlords who rely on their rental income to cover the mortgage.

This guarantee can help both landlords and their tenants from additional financial hardships as a result of the pandemic.

Americans Are Taking On More Debt

We're only a few weeks into the first signs of economic turmoil as a result of COVID-19, but many Americans (27% of respondents) have reported having no money set aside for emergencies and were, therefore, not prepared for the potential of long-term changes in income.

As a result, 25% of the respondents in our survey reported taking on additional debt to pay for essentials during the coronavirus-related lockdowns and unemployment.

The majority (58%) of people are racking up debt by using credit cards, but some have gotten their hands on additional cash through cash-out refinancing (21%), personal loans (27%), or borrowing from a friend or family member (29%).

Of those who have taken on debt as a result of COVID-19, 72% have borrowed less than $2,000 while 5% are already $10,000 behind. Considering hiring has slowed and more people will likely lose their jobs in the coming weeks and months, we expect that people will continue to take on more debt to cover expenses.

Americans Believe a COVID-19 Recession Will Be Worse Than the Great Recession

The effects of the coronavirus on the U.S. economy became clear very swiftly once “essentials-only” mandates began to take effect. Many businesses closed, hundreds of thousands of Americans lost their jobs, and economists predict that unemployment will continue to rise above Great Recession rates.

What's more, leaders and economists fear that “the downturn stemming from the coronavirus will surpass the Great Recession in intensity as fallout from the pandemic ravages businesses large and small ,” as we will likely see more states join the 38 that already have stay-at-home measures in place.

Morgan Stanley advisors expect people's decrease in discretionary spending to dramatically impact the U.S. GDP through the second quarter of 2020, projecting a drop of over 30% by the end of June.

Non-experts seem to hold a similar outlook, as 80% of respondents agreed that the COVID-19 recession would be as bad or worse than that of the 2008 Great Recession.

The effects of the coronavirus pandemic on the economy might not be long lived, though. While Morgan Stanley predicts a huge drop in GDP by the end of Q2, they also predicted that we'll see a quick turnaround that results in an overall average GDP decline of about 5.5% for the year.

While negative growth in GDP isn't ideal, a net drop of 5.5% means that Q3 and Q4 should show substantial relative growth. This could mean that businesses should be able to bounce back relatively quickly by re-hiring as soon as the mandates are lifted.

Unemployment Has Skyrocketed

According to the Bureau of Labor Statistics, unemployment hit 4.4% as 701,000 people lost their jobs between February and March of this year — the first month-to-month decrease in jobs since the Great Recession.

Our data are consistent with national trends. Of those who had jobs prior to the outbreak, a fortunate proportion of respondents (55%) were able to keep their jobs because they were an essential worker, already working remotely, or are now working remotely.

The other 45% of respondents who had jobs, however, were not so fortunate. Over one quarter (28%) no longer have a job while 13% have fewer shifts or contract jobs as a result of the coronavirus.

Those who lost their jobs are in a tight position considering many states have mandated non-essential businesses to shut their doors or find a way to have employees work remotely, meaning hiring is likely slower than normal.

Some respondents (35%) who lost their jobs are able to hold off looking for a replacement, but many cannot afford to live without income for a long period of time. Respondents were 1.6x more likely to search for any job to bring in income — even if that meant taking a part-time or temporary gig — than to search for a job comparable to the one they lost.

Half of those who have lost their job as a result of the coronavirus believe it will be difficult to find another job once they begin searching. Nearly 20% think it will be extremely difficult , suggesting many have a grim outlook on the future of the job market.

Americans Support Social Distancing Measures

Despite the potentially catastrophic economic impact of drastically reducing Americans' discretionary spending, the purpose of essential-only outings and businesses is to decrease the number of people who need intensive care or medical resources at any given time.

These measures are putting lives first, the economy last. And, while there has been some debate about whether attempting to revive the economy should be a priority at the national level, precautionary measures have been extended through at least the end of April at the time of this study. That choice is largely supported by our respondents: 73% said slowing the spread should be prioritized over the economy.

An overwhelming majority (96%) of Americans said social distancing is a necessary precaution. Interestingly, nearly 40% think stay-at-home and shelter-in-place measures are excessive even though 96% of respondents reported practicing social distancing by staying home unless necessary (77%), decreasing the frequency of grocery shopping trips (56%), limiting unnecessary shopping in person (56%), , and only interacting (in person) with the people they live with (49%) — all of which are essentially “shelter-in-place” practices.

People Are Spending Differently

With a changing economic landscape, 75% of Americans reported spending more or less in the last month than they normally would. The biggest change isn't necessarily in how much people are spending, but what they're buying now compared to pre-COVID-19 days.

Most respondents reported spending about the same amount on many monthly services, like cell phones, Internet service, streaming services, and monthly subscription boxes.

Less money is being spent on hobbies and eating at restaurants while people are forking out more cash for groceries.

As mentioned previously, many have made arrangements to alter payment schedules on their homes (mortgages or rent), but it doesn't stop there. Americans are suspending, canceling, or skipping payments on a load of services and loans.

More specifically, people have reduced or stopped paying or canceled gym memberships (68%), student loans (62%), internet or television services (including streaming; 55%), auto loans (36%), credit card payments (33%), utilities (22%), and cell phone bills (20%).

Methodology

The data in this report were gathered from an online survey on March 31, 2020. The only restriction for participation was that respondents were 18 or older, lived in the United States, and were either paying rent or a mortgage on the home in which they lived.

We collected data from 500 renters and 500 homeowners who each answered up to 23 questions (some were dependent on answers to other questions, so not all respondents answered all of the questions).

The only differences between renters and homeowners were a series of questions related to renting and/or homeownership. Specifically, homeowners answered questions related to their mortgage payment, losing their home, and selling their home, while renters answered questions about rent payments, being evicted, and purchasing a home. All other questions were the same regardless of whether respondents were homeowners or renters.

You can view the results of the survey for renters here and for homeowners here.