What effect will mass evictions have on the housing market?

Since December, nearly $50 billion in aid has been provided to tenants and landlords in the United States. In September, the Center for Disease Control (CDC) implemented a sweeping eviction moratorium that provided the federal government with basic protections for tenants.

But the moratorium expires on June 30 — and eviction processes have already begun in some states. Some have even gone so far as to actually evict tenants. Meanwhile, other states have implemented their own deportation protections beyond the federal moratorium.

Rumor has it that there could be additional rental assistance through Congress. But with rising inflation, judges challenging moratorium guidelines, and compliance diverging across states, it’s unlikely we’ll see a significant package anytime soon.

That said, what is the current state of evictions and housing support progress? What will happen to the housing market when the moratorium ends?

Being a landlord can be fun – if you do it right

No matter how good you are at finding good leases, you can lose everything if you don’t manage your properties properly. Being a landlord doesn’t have to mean midnight calls, expensive evictions, or daily frustrations with ungrateful tenants.

Evictions are coming back

It is estimated that the average delinquent tenant owes between $5,000 and $6,000 in delinquent rent. This equates to what experts estimate to be somewhere between $13 and $52 billion in total rent arrears in the United States.

Given the high costs of housing, the increased price of goods and the pandemic, most of these tenants have little or no savings.

The bottom line: there are many tenants who will be evicted in the coming months.

As mentioned, the federal government has approved nearly $50 billion in aid for tenants and landlords in the past six months alone. However, its usefulness has been dampened by slow administration, an overwhelming number of applications and a lack of awareness among tenants and landlords who need help.

“The money came late,” Diane Yentel said in a recent interview with Vox. Yentel is the president and CEO of the National Low Income Housing Coalition. “The money came when tenants had already accumulated nearly $50 billion in rent arrears. So now we are playing a make-up game.”

Progress in delivering aid has been incredibly slow. California, a state with some of the highest cost of living found anywhere in the United States, paid out just $1 million of the $355 million in funds received. That’s only 0.3%.

What causes the delay in aid?

The measures taken to prevent a mass eviction and homeless crisis in the United States have helped. But that doesn’t mean everyone understood his role in administering aid.

As always, hiccups occur when directions aren’t given, emergency responders don’t know where to start, or the number of requests far exceeds the number of people working to send money. To help the rental market, states needed to set up the right programs, plan effectively, hire workers, assign tasks, build infrastructure, and review and review applications. That’s a lot of steps – and a possible bureaucratic nightmare.

According to the CDC, to qualify for aid, a tenant must:

  • Unable to make rent payments due to significant loss of family income or extraordinary medical expenses
  • Earn no more than $99,000 in annual income in 2020 (or $198,000 if you file a joint tax return), or expect to earn no more than $99,000 in 2021 (tenants not required to file 2020 taxes also qualify eligibility)
  • Do everything possible to obtain government support for rent or housing
  • Become homeless if they are evicted
  • Do their best to make payments, in part or in full.

Bending through these hoops is more challenging than you might think. In addition, checking that the information is correct and appropriate is another hurdle for the employees making decisions.

With tight budgets and the sheer amount of help needed, there is no room for error and waste. But as we’ve seen, governments struggle to get money out in the first place.

How can massive evictions affect the housing market?

It is never a good situation to have millions of tenants on the brink of eviction. Yes, consumer confidence, housing demand, prices and other economic data indicate that the housing market is doing well. Yet a wave of expansion is never good for the economy.

Mass eviction leads to temporary (or permanent) loss of income for landlords who may already be short on cash with the suspension of payments. In turn, they may default on their mortgages — and investors who are underwater may step back and sell some properties.

If that happens, we could have a wave of bankruptcies, potentially leading to a drop in prices and ending the market’s bullish streak. But of course, depreciation equals a loss of wealth, which hurts the economy.

To be clear, this is an unlikely scenario. Demand from buyers is so high that an investor should be able to unload the property in the market rather than defaulting it. Or at least try to get government support.

But instead of ruling out scenarios because they seem improbable or illogical, we need to be prepared for the most insane and unimaginable scenarios. If last year provided any evidence of this idea, then we should keep the potential reality to ourselves, no matter how much we think we know.

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