Despite early predictions of an impending doom, the housing market has so far eschewed the dampener that the coronavirus pandemic has slammed onto other sectors of the U.S. economy. But with key federal policies lapsing without renewals, infection numbers growing and the economic downturn drawing out, real estate may soon see its fortunes reversed, says Jarred Kessler, CEO of proptech company EasyKnock.
The Covid-triggered crisis has thus far unfolded in a manner opposite of what is conventional in a recession, says Kessler who spent years working on Wall Street for banks such as Morgan Stanley and Goldman Sachs before founding EasyKnock, which offers sale-leaseback options to homeowners.
This peculiarity largely rests with the federal government’s early actions to prop the economy, passing the $2 trillion CARES Act in late March, just when the virus began to course through the country.
“Usually, when you have a crisis or a recession, what happens is that you initially have people whose household solvency goes down,” Kessler says. “What happened during Covid is household solvency went up because the government almost bridged people's payroll through the Paycheck Protection Program, the $1,200 stimulus checks and the federal unemployment benefits of $600 a week.”
Intended to stabilize the larger economy, these measures also helped the housing market by providing Covid-impacted tenants and homeowners the funds to keep paying their rent and mortgages. In some cases, they also plumped the savings of home shoppers, who have flocked to the market amid record-low mortgage rates. At the same time, the tight supply of homes for sale has kept boosting prices, increasing sellers’ equity.
The stopgap policies in the CARES Act, however, have created “a false sense of confidence for consumers and the government,” Kessler says. “You're going to see a shift to the other extreme where you're going to see real panic in the market.”
With Congress and the White House still negotiating – and disagreeing – over the terms of the next relief package, several of the key policies credited with buoying the housing market have already expired, including the enhanced jobless benefits of $600 a week, the federal eviction moratorium as well as the one-time stimulus payment.
Here is what Kessler anticipates.
An increase in homeowners selling their houses out of necessityWhile it has remained below its annual level since the start of the pandemic, inventory will likely rise as the economic pains of the health crisis start to unfold in full. More policy provisions are soon to run out, while the federal government appears paralyzed along party lines.
“The market’s going down,” Kessler says. “If people don't have a choice, they're going to put their house on the market and then another person and another person, and then eventually it hits an inflection point, where people realize that they don't have that sense of confidence and they need to move fast. That just creates a self-fulfilling prophecy.”
Moreover, some experts have already expressed concern about the possibility of spiking foreclosures once mortgage forbearance expires.
“A third of the country has no mortgage and half the country has a loan-to-value ratio of 50% or less,” Kessler says.
“You have all these people who have built up equity in their house, and that actually can help them buy time or bridge their situation. But because of the credit crisis, lending standards are become tougher. Banks are getting out of the HELOC business and tightening their standards. You're going to see an increasing amount of people that are asset-rich and cash-constrained.”
Cities with high taxes are to suffer the most“If you're in a state that has high taxes, you might not have a choice anymore,” Kessler says. “You might have to move someplace that has low taxes. In some places that are high-tax states like New York, California and Illinois – it's not a political statement, but a lot of blue states – you're going to see a shift. Then, in a lot of cities crime is going up. People over decades have been moving to the cities because they felt safer.
And now, you're going to see a shift going the other way again.
“Some areas are going to take some real pain. Unfortunately, my home city of New York is going to be one of them in my opinion.”
Another lockdown will do more damage than helpAs a number of states have walked back aspects of their reopening plans, some public figures have floated the idea of a second national lockdown. Earlier this week, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, said on CBS’ “Face the Nation” that the government should enact another, month-long shutdown, adding “that's the only way we're really going to have a real robust economic recovery.”
“Kashkari said a lockdown would actually be helpful to the economy, taking the short-term pain would actually be better for the long term,” Kessler says. “By dragging this out and this approach of fragmented lockdowns to help save the economy, it’s making it worse.”
The government should be proactive, not reactive“The government should create tax incentives and holidays and focus on landlords and mortgage companies,” Kessler says. “Because if they are subsidized, they're not putting pressure on people being evicted. Otherwise, the homeless issue and the eviction rates are going to be really bad. But if you start with the landlords and lenders and you create a government program to help them access liquidity, ultimately that will filter down to the consumers.”
Without more federal aid for workers, experts are expecting the largest disruption to the housing market since the Depression.
For the 108 million people who live in a rental home or apartment, Aug. 1 was a grim milestone. It marked the first time rent was due after much of the nation’s economic response to the coronavirus had expired.
The lapse of expanded unemployment benefits and federal, state and local eviction moratoriums is forcing lawmakers to figure out how to extend those protections. It has also left experts resorting to natural disaster metaphors (“avalanche,” “tsunami”) to describe the scale of potential evictions.
Unlike the U.S. economy, which was enjoying the longest expansion on record, housing — specifically rental housing — was troubled before the virus hit, with problems going back decades. A little under four million evictions are filed each year, one in four tenant households spends about half its pretax income on rent, and each night some 200,000 people sleep in their cars, on streets or under bridges.
Those were the statistics in good times. Now, with unemployment above 10 percent and projected to stay there through at least next year, tens of millions of households could be at risk of eviction in the coming months. Even if only a fraction of those evictions actually take place, it would still be several times the current pace and the biggest disruption in rental housing in decades.
Whatever the final tally, it is increasingly clear that if the Great Recession was personified by empty subdivisions and foreclosed homeowners, the enduring symbol of coronavirus, with its disproportionate impact on hourly workers, is likely to be a laid-off tenant struggling to keep an overcrowded apartment.
“The United States is on the brink of an eviction crisis of unprecedented magnitude,” said Emily A. Benfer, a professor at Wake Forest University School of Law.
That is, of course, a projection — and so far, government efforts to hold back a wave of displacement have been effective. About two-thirds of the workers eligible for extended unemployment protections could make more than they did when they were employed, allowing tens of millions of tenants to shelter in place while paying their monthly bills.
Renters who didn’t receive unemployment pay were largely covered by the various eviction moratoriums that, while not relieving their debts, had at least granted them a reprieve. The federal moratorium alone, passed as part of the CARES Act in March, covered between 28.1 percent and 45.6 percent of rental units.
On Friday, after talks between the Trump administration and Democrats effectively stalled, President Trump threatened to bypass Congress to extend the moratorium.
The moratoriums were supposed to be emergency measures to give tenants some relief until the virus subsided and the economy returned to health.
Except that didn’t happen. The virus continues to surge around the country, and parents are unsure when schools will reopen. Each week more than a million laid-off employees continue to file for unemployment insurance, while temporary layoffs are becoming permanent job losses.
Landlords hold that the most extreme predictions of evictions are overblown. For starters, the limited data available suggests that most tenants have stayed current on their bills. Also, property owners, facing rising vacancies and falling rents, are increasingly working out rent cuts and extended payment plans.
Still, put all the numbers together, and it becomes clear that renters were struggling before the pandemic, they’ve been hit harder by the virus and job losses, and the rental market is likely to be more challenging even after the economy recovers.
Ebbets Field, a housing complex in Brooklyn. Eviction moratoriums have protected people who might not have received other government benefits.
An apartment building in Oakland, Calif. Expanded unemployment benefits have helped millions of people stay current on their bills.
The pandemic response had problems, but mostly succeeded.In the wake of the pandemic, 43 states and Washington, D.C., enacted some kind of eviction moratorium, according to Ms. Benfer. On top of that were various local measures, along with the federal eviction moratorium, which covered subsidized housing and rental properties with loans backed by Fannie Mae and Freddie Mac.
While these measures were of varying length and strength — and many, including the federal ban, had little to no enforcement mechanism — together the patchwork served to halt or slow evictions for a majority of renters. Only seven states — Arkansas, Georgia, Missouri, Ohio, Oklahoma, South Dakota and Wyoming — never issued a statewide stay on evictions, and even in those states, the federal rules should have protected at least a third of renter households.
Just as important as those protections were the federal unemployment and stimulus payments. After all, most renters do not have eviction problems if they stay current on their bills, and with help from the $1,200 stimulus payments and $600 in extended unemployment that came with the CARES Act, many of them have.
That help is ending, and renters are slipping off the cliff.Benjamin Schenk, a San Diego landlord who operates 30 units in two buildings, is one of the many property owners who have been surprised by the high number of tenants paying their rent in the early months of the pandemic. In March he was talking with his lenders about how he might restructure his loans in anticipation of nonpayments, only to make it to August with payment rates close to 100 percent, which he attributes to the CARES Act.
But people are now falling behind. Though it will take until mid-month to get a true sense of how bad August will be, several tenants who lost their jobs stopped paying rent in the first few days. “The aid that folks are relying on has dried up and not a lot of places are hiring,” Mr. Schenk said.
While there’s no comprehensive data on rent payments, a weekly tracker from the National Multifamily Housing Council that covers about 11 million units has started slipping. In the Census Bureau’s most recent Pulse Survey, for the week of July 16 to 21, just under one in five renters said they were unable to pay July’s rent on time, while one in three were unsure they could make August payments.
The threat to small landlords is also a threat to tenants. About 40 percent of the nation’s 48.2 million rental units are owned by “mom-and-pop” operators who tend to have a limited financial cushion. Since much of the nation's affordable housing consists of small apartment buildings and single-family homes if these smaller landlords go under many of their units could be “lost.” Some would become owner-occupied housing. Others will get acquired by larger investors who plan renovations and rent increases — compounding a longstanding affordable housing shortage.
Evictions have piled up and are now resuming.Evictions, meted out by local courts, are difficult to tally nationwide. For now, new filings are depressed compared with historical averages, according to a survey of a dozen cities by Princeton University’s Eviction Lab. But they have resumed around the country, and are likely to grow.
There is a difference between an eviction filing, which is the start of a legal process, and an actual eviction, in which a tenant is removed. According to Eviction Lab, there were 3.7 million such filings in 2016, about one million of which led to an eviction — a figure that undercounts displacement.
So even if there are only a million formal evictions a year, the number of people who are displaced is probably several times that, and likely to grow.Many tenants leave after a threat of eviction or the first sign of a filing. Others leave after a landlord turns off utilities or changes the locks. Even for tenants who are never taken from their home by a sheriff, behind every filing is severe stress and tattered credit that makes it harder to find a new place. Beyond that is the uncountable number of families whose rent was raised beyond their means and who left before missing a payment.
While homelessness would almost certainly increase with a spike in evictions, this doesn’t necessarily mean shelters will fill up or encampments will pop up on every street. Tenants, in particular, families, often exhaust every available option — living in weekly hotels and illegal garages, staying with friends or piling in with multiple roommates — before they end up in the shelter system or the streets.
Steve Noggle, 43, was evicted from his apartment in Annville, Pa., this week. He received just five weeks of extended unemployment benefits even though he lost his restaurant job four months ago. He has been sleeping on his sister’s couch since Monday. “I don’t like having to be here, it’s a burden on everybody, especially because I can’t contribute anything financially,” he said. “I’m just hoping I can get a job as soon as possible."
For the fourth straight month, nearly one in three Americans missed their housing payments – but the situation could be at least temporarily alleviated through another stimulus package, according to a new study from Apartment List.
As eviction bans expire across the country, 32% of homeowners and renters failed to make their full housing payments on time, according to the study. More than 20% owed more than $1,000.
“In the first week of August, 11 percent of survey respondents made a partial payment of their monthly rent or mortgage bill, while an additional 22 percent have yet to make any payment whatsoever,” study authors Igor Popov, Chris Salviati and Rob Warnock wrote. “This continues a trend that has now lasted four months; the combined rate of missed and partial first-week payments has ranged from 30 to 33 percent going back to May.”
Each month so far, Apartment List found that many missed mortgage and rent payments were made whole with late payments by the end of the month.
“Nevertheless, by the first week of August, 10 percent of respondents had still failed to make a full payment for July,” the authors wrote. “As a result, unpaid housing costs are piling up for many Americans, renters and homeowners alike.”
The study found that 65% of homeowners with unpaid housing bills worried about facing foreclosure within the next six months, while 66% of renters in the same boat feared facing eviction within that time frame.
“With the recent expiration of most federal eviction and foreclosure protections and a lapse in expanded unemployment benefits, this insecurity is sure to deepen over the coming weeks,” the authors wrote.
At the beginning of August, 8% of homeowners had accumulated missed housing payments of under $1,000, while 11% owed between $1,000 and $2,000 and 13% owed more than $2,000, the study found. Meanwhile, 15% of renters owed their landlords less than $1,000, 11% owed between $1,000 and $2,000, and 5% owed more than $2,000.
“These accumulating missed payments affect renters and homeowners very differently,” the study said. “Some owners can defer payments through forbearance plans or even tack payments missed due to financial hardship onto the end of their loan period. Renters lack these options and the clarity that accompanies them.”
Could stimulus solve the problem?
“As congress continues to debate another round of stimulus, these data serve as an important indicator of the amount of assistance required to get Americans caught up on their housing payments (and potentially save thousands of families from losing their homes),” the study authors wrote.
According to the study, a stimulus check of $2,000 would be sufficient to meet the unpaid rent bills of 83% of renters who are currently behind on their payments. An additional $1,200 payment would alleviate half the nation’s outstanding housing debt.
“That said, a one-time payment does little to alleviate the underlying economic crisis causing this problem, so it is likely that housing debt would again accrue as widespread unemployment continues,” the study said.
As public school teachers, Tori Smith and her husband have careers that should survive the coronavirus economy, but their mortgage lender wasn’t taking any chances.
It told them that they would have to put down more money to keep the interest rate they wanted, then dialed back what it was willing to lend them. And Ms. Smith said it had checked their employment status several times during the approval process — and again a few days before the couple closed on their home in Zebulon, N.C., last month.
Ms. Smith said she had never gotten a straight answer about the new requirements, but she ventured a guess. “I felt like we had to bring more just because of Covid,” she said.
The economic crisis caused by the pandemic has driven interest rates to rock-bottom levels, meaning there has hardly been a better time to borrow. But with tens of million of people out of work and coronavirus infections surging in many parts of the country, qualifying for a loan — from mortgages to auto loans — has become more trying, even for well-positioned borrowers.
Lenders that have set aside billion of dollars for future defaults have also tightened their standards, often requiring higher credit scores, heftier down payments and more documentation. Some, such as Wells Fargo and Chase, have temporarily eliminated home equity lines of credit, while Wells Fargo also stopped cash-out refinancing.
It’s not unusual for lenders to tighten the credit reins during a downturn, but the current situation has made it especially challenging for them to get an accurate read on consumers’ financial health. Borrowers have been able to pause mortgages, halt student loan payments and delay paying their tax bills, while millions of households have received an extra $600 weekly in unemployment benefits. Those forms of government support could be masking an underlying condition.
“It makes it hard for a lender to understand what the consumer’s true state of credit quality is and their ability to pay back a loan,” said Peter Maynard, senior vice president of global data and analytics at the Equifax credit bureau.Credit card companies, for example, mailed out 57 million offers to consumers in June, a historic low and down from 272 million a year earlier, according to Mintel, a research firm that has been tracking the offers since 1999. Some banks have stopped offering the types of cards that attract people who may be focused on paying down debt, such as BankAmericard, Mintel found.
Credit card companies, for example, mailed out 57 million offers to consumers in June, a historic low and down from 272 million a year earlier, according to Mintel, a research firm that has been tracking the offers since 1999. Some banks have stopped offering the types of cards that attract people who may be focused on paying down debt, such as BankAmericard, Mintel found.
Issuers are also being careful with cards belonging to current customers, said Mark Miller, associate director of insights for payments at Mintel.
“Some dormant accounts are being closed,” he said. “So if they have a credit card sitting in a drawer, those accounts are at risk of being closed, and credit lines with a $10,000 limit may eventually be knocked down to $8,000.”
For auto loans, borrowers with lower credit scores and thin credit histories face more rigorous requirements and less generous terms, including shorter loan periods.
“Subprime borrowers are not getting loans as readily as they were pre-pandemic or a year ago,” said Jonathan Smoke, chief economist at Cox Automotive, referring to consumers with credit scores below 620.
Interest rates for new and used vehicles remain low — below 4 percent at many banks and credit unions — but only for more qualified borrowers, said Greg McBride, chief financial analyst at BankRate.com.
“Good credit and a down payment are required to get the best rates, with weaker credit increasingly sidelined — particularly for older-model used car purchases,” he said.
Ford Motor said it hadn’t tightened standards on loans through its financing unit, but last month it introduced a program to make wary borrowers more comfortable. Those who buy or lease a car through Ford’s financing unit before Sept. 30 can return it within a year if they lose their jobs. Ford said it would reduce the customer’s balance by the vehicle’s book value, and then waive up to an additional $15,000.
If that measure is meant to stoke demand, no such program is necessary for home buyers.
For the first time in nearly half a century of tracking, 30-year fixed-rate mortgages averaged about 2.98 percent, according to Freddie Mac. The mortgage industry made $865 billion in loans during the second quarter, the highest amount since 2003, when quarterly originations twice topped $1 trillion, according to Inside Mortgage Finance, a trade publication.
And that’s with lenders being picky about their customers and particular about their requirements. JPMorgan Chase, for example, will make mortgages to new customers only with credit scores of 700 or more (up from 640) and down payments of 20 percent or higher. USAA has temporarily stopped writing jumbo loans, which are mortgages that are generally too large to be backed by the federal government, among other products. Bank of America said it had also tightened its underwriting, but declined to provide details.
Ms. Smith and her husband, Philip Ellis, had hoped to go through a first-time homebuyer program at Wells Fargo that would require them to put down 3 percent. They even sat through a required educational course. But two weeks before closing on their $205,000 home, their lending officer said they needed to put down 5 percent to keep their rate.A week later, Ms. Smith said, they learned their loan was for less than what they had been preapproved for — and they needed to come up with an additional $4,000. In the end, their down payment and closing costs exceeded $14,000 — about 45 percent more than they had anticipated.
The couple, who had married in April, used money recovered from their canceled wedding reception. Ms. Smith said they were also lucky to have the support of their families, who fed and sheltered them so they could save every penny. But the stability of their jobs was also most likely a crucial factor.
“I think our ability to secure the loan was due to us both being schoolteachers and having a contract for employment already for the following year,” she said.
Wells Fargo said it hadn’t increased its credit score requirements, but it has raised down-payment minimums on certain loans not backed by the government because it had to suspend most interior appraisals of homes during the pandemic. Even under normal circumstances, there are a variety of situations in which borrowers may be asked to raise their down payment or obtain a better rate by doing so, a company spokesman said.
Some lenders also want to know more about borrowers’ other possible sources of cash.
When Chris Eberle, a technology executive, and his wife were locking in their jumbo mortgage for a new home in Palo Alto, Calif., their lender, a California mortgage bank, wanted to know not only how much they had in their retirement accounts but how easy it was to get at that money.
"They wanted, account by account, details on the withdrawal and loan options,” Mr. Eberle said.
And they, too, had to put down more than they had planned. Before the crisis, a jumbo loan could be had with 10 percent down. Mr. Eberle said they had to put down 20 percent — and found a cheaper house to make it easier.
Other borrowers, including the self-employed, are being asked to provide more detailed proof of their earnings — at least when they’re getting a loan that will be backed by Fannie Mae or Freddie Mac. .
“Employment and income verification for self-employed borrowers is now multiple times more detailed as it previously was,” said Ted Rood, a loan officer in St. Louis who lends nationally.
Income verification is also more rigorous across the board, and Mr. Rood said he was required to do two verifications over the phone. It makes sense, he said: He had just prepared a loan for a married couple — a gym owner whose income had suffered and his wife, a speech therapist with a seemingly more stable position because she was able to work with clients remotely.
“We were set to close on a Monday in early June,” said Mr. Rood, who was working at Bayshore Mortgage Funding, which is based in Timonium, Md., at the time. But when the loan processor called the wife’s employer the Friday before, the processor learned that the woman had been laid off.
The lender withdrew the loan.
Democratic lawmakers are demanding answers as Wells Fargo becomes embroiled in yet another scandal – this time, over putting mortgage customers in mortgage forbearance programs without their consent.
In recent weeks, there have been multiple reports that the scandal-plagued bank has placed borrowers who were not delinquent in mortgage forbearance programs without their knowledge or consent. Some borrowers said they only learned of Wells Fargo’s actions from their lawyers, rather than the bank itself. There have also been reports that the bank has made misrepresentations to bankruptcy courts about borrower’s requests for forbearance.
In a letter to Wells Fargo CEO Charles Scharf, Sen. Elizabeth Warren (D-Mass.) and Sen. Brian Schatz (D-Hawaii) accused the bank of “putting consumers at risk of greater financial hardship amidst one of the worst economic downturns in our country’s history.”
Warren and Schatz called the latest scandal “highly disturbing” given the bank’s recent history of illegal behavior and mistreatment of customers, “including over a dozen scandals involving the creation of millions of fake customer accounts, illegal repossession of service members’ cars, wrongful foreclosure on hundreds of homes, illegal add-on charges to customers’ accounts, and much, much more.”
“This scandal-ridden history reveals a broken culture at Wells Fargo, and a bank that appears to be incapable of self-governance,” the senators wrote. “The new reports raise even more questions about the inability of Wells Fargo and its leadership team to comply with the law and the needs of its customers.”
Warren and Schatz cited multiple cases in which Wells Fargo wrongly claimed that borrowers asked to put their mortgage payments on hold in forbearance plans.
“These forbearance filings were based on nonexistent requests from customers,” the senators wrote. Wells Fargo has claimed that “may have misinterpreted customer intentions” in some cases.
Borrowers in at least 14states who were not delinquent on their loans had their mortgages put into forbearance without their knowledge or consent, Warren and Schatz said.
“These consumers were hurt in several ways by this practice: they did not receive credit for several months of payments, their credit reports may have been damaged, and they may have lost the opportunity to modify or refinance their mortgages while interest rates were at record lows,” the senators wrote.
Warren and Schatz said they supported servicers taking action to help distressed borrowers, and it was not their intent to discourage the bank from helping customers if the current scandal turns out to be limited to errors in a few isolated incidents.
“However, Wells Fargo’s history of taking actions without the consent of consumers is cause for serious concern that this is another systemic failure at the bank,” they wrote. “Indeed, if these reports are true, they represent one more addition to a long list of inexcusable actions by Wells Fargo at customers’ expense. The practices described in these reports are eerily similar to previous Wells Fargo scandals.”
The senators demanded a response from Scharf explaining the steps Wells Fargo took to place customers in forbearance plans, and how the bank notified those customers. They also asked how many loans the bank had placed in forbearance, and if Wells Fargo had “been compensated for forbearance filings not requested by the borrower.”
They also took Scharf to task for failing to clean up the bank’s scandal-ridden culture.
“You were appointed nearly ten months ago after your two predecessors were dismissed for their incompetence and inability to institute meaningful reforms at the bank,” Warren and Schatz wrote. “We had hoped you would bring the needed change to Wells Fargo’s culture following years of false promises and continued scandals, and we were initially encouraged by press reports that indicate that you were undergoing an ‘intense review’ of the banks operations and meeting with executives, ‘grilling them about the ways they do business.’ But this recent reporting highlights the broken culture at the bank, and the need for Wells Fargo to remain under intense regulatory scrutiny until it is clear that the necessary changes have been made to ensure that the bank is truly committed to its consumers.”
Forbearance programs permitting temporary suspension of Americans’ monthly mortgage payments have been a godsend to the more than 4 million borrowers who have made use of them in the time of COVID-19. But the end of this much needed grace period is looming large.
Carol Faber, Partner and Co-Chair of the Distressed Property Practice at Akerman Law, has been through several downturns in her 35-year career. For Faber, it’s important to acknowledge that despite being five months into the COVID-19 crisis, the real estate cycle is still in the early stages of reacting to it.
“No one really knows how long this is going to last,” she says. “I find myself repeating constantly that we are still in the early innings of this – even though we are five months in.” So far, Faber explains, neither lenders nor landlords have been able to enforce their rights, which has prevented the kind of dramatic mass-eviction scenario many tenants’ rights groups are fearing.
The most important element in any sort of resolution will likely to be how the next phase of relief measures plays out. Faber does not anticipate government measures prohibiting foreclosures and evictions to expire according to their current schedules.
“I don’t know that these programs are going away,” she says. “I think that Congress is going to re-up some of those programs so they won’t go away so fast. I don’t think they can let everything go into freefall. I don’t see how they cannot continue funding some of these programs – there is just too much demand for it right now.”
Mortgage forbearance programs for borrowers with federally backed mortgages were scheduled to run until June 30, but that ending date has already been moved back to August 31.
Once the government programs have run their course, Faber expects to see more foreclosures, sales of distressed properties, and perhaps a rude awakening regarding the value of loan portfolios.
“Currently there is a disconnect between what people think their loan portfolios are worth and what buyers think they’re worth. We’re going to see more determination of what the values are right now. It’s hard to underwrite properties right now,” she says.
Faber feels that the timelines attached to the government’s many support vehicles, reflective as they are of a long-since extinguished optimism around the federal government’s ability to manage the crisis, will need to change.
“I think the hope was that we’d be further along in the pandemic, that we’d be opening up [the economy], which would lend itself to ramping down some of these programs,” she says. “But people and institutions and companies are still in need of these programs, and the government will continue to fund them.”
As government programs extend into August, Kenon Chen, Clear Capital’s executive vice president of corporate strategy, is keeping a watchful eye on both foreclosures and forbearance numbers, noting that the default rate already climbed from two percent, 7.76 percent in May.
“It’s concerning,” Chen says. “Once the moratorium is lifted there could be an impact. There are going to be loans that need decisions and [we will have ] to ascertain the value and conditions of these properties.”
Chen is taking a wait and see approach, while also emphasizing the need for lenders and originators to be armed and ready with information if a wave of defaults hits.
“We are seeing some recovery in housing, and the question remains what will it look like in fall and for the rest of the year? It’s difficult to predict. The one thing I think is clear is that in order to reduce risk, the need for low cost data and analytics is paramount to give lenders the opportunity to make good decisions,” he says.
Apartment landlords across the U.S. spent the last days of March holding their collective breath while waiting for rent checks to come in.
For the most part, they did, thanks to the $2 trillion in emergency relief authorized by Congress to blunt the economic blow of the pandemic. Now, expanded unemployment benefits are expiring and eviction bans are set to lift, leaving tenants and building owners wondering again what will happen when the bills are due.
It’s not going to be good.
One in three renters failed to make their full payment in the first week of July, an Apartment List survey showed. Nearly 12 million renters could be served with eviction notices in the next four months, according to an analysis by advisory firm Stout Risius Ross. And in some cities, like New York and Houston, more than a fifth of renters say they have “no confidence” in their ability to pay next month.
“You’d have to go back to the Great Depression to find the kind of numbers we’re looking at right now,” said John Pollock, staff attorney at the Public Justice Center, a Baltimore nonprofit that uses legal tools to fight poverty. “There’s almost no precedent for this, which is why it’s so scary.”
The pandemic spurred mass layoffs beginning in March, and renters have been scraping by on a combination of savings, credit card debt, unemployment benefits and federal stimulus. Roughly 11 million renters spend at least half of their income to keep a roof over their heads in normal times, and the first wave of job cuts skewed toward lower-paying retail and hospitality workers who are less likely to have emergency savings.
One-time stimulus payments of $1,200 helped, as did eviction moratoriums passed by local, state and federal governments. And Congress authorized an additional $600 a week in unemployment insurance on top of what states provide, offering a lifeline to millions. In some cases, the benefits exceed what workers were bringing home while employed.
That extra boost will expire at the end of the month without action by Congress. The Trump administration and Senate Republicans have yet to release their $1 trillion plan for another round of virus relief, which Treasury Secretary Steven Mnuchin and others have described as an extension of portions of the last stimulus. The proposal would be their opening bid in talks with Democrats, who’ve already offered a $3.5 trillion package.
Continuing the extra unemployment benefits would provide a measure of relief to people like Brooke Martin, 33, who lost her job at a dive bar in Seattle in March. Even though the business has since reopened, she’s hesitant to go back, fearing for her own safety. The bar doesn’t have good ventilation and people aren’t wearing masks when they aren’t drinking, she said.
Martin and her husband have been living off her unemployment alone, because he was unable to collect benefits himself. After her student loan payments, utilities and other expenses, the money is barely enough to cover their $1,800-a-month apartment.
“As of the end of the month, we’re screwed,” she said. “There’s just no two ways about it.”
The U.S. had a pretty “stingy” safety net when it came to housing before the pandemic, said Mary Cunningham, vice president of the Metropolitan Housing and Communities Policy Center at the Urban Institute.
But Congress’s quick action to give aid this spring has shown the upside of being more generous. Adults who received unemployment benefits were far less likely to report they were worried about making rent or mortgage payments, compared to those who hadn’t gotten the relief, according to a survey the institute conducted in May.
“This has been an important part of the safety net,” said Cunningham. “If Congress doesn’t do anything, I think we are in for a dark fall and winter.”
John Pawlowski, a senior analyst at real estate research firm Green Street Advisors, said he doubts the apartment industry would see an immediate crash if the additional unemployment benefits aren’t extended. People will skip things like auto and credit card payments to cobble together enough for rent.
“People still need a place to live,” he said.
But over the long-term, rental revenue will decline because of missed payments and lower occupancy as tenants look to save money by doubling up with others, Pawlowski said. Landlords could end up missing more than $22 billion in rent over the next four months, according to the Stout analysis.
Chuck Sheldon manages about 1,650 apartments in Albuquerque, New Mexico, about half of which he owns. Rent collections have been far better than he had feared in late March, when several states were going into lockdown.
Sheldon’s T&C Management tends to rent to more blue-collar and service workers who have been disproportionately hit by job losses. Most have tried to stay current, he said, and the $600 unemployment boost has been a “huge” part of that.
“When it drops off, that’s going to be painful,” he said.
With more than 32 million people set to lose the additional $600 per week in unemployment benefits when the Federal Pandemic Unemployment Compensation (FPUC) program expires this week, the share of renters facing a severe housing-cost burden could skyrocket – with Black households disproportionately affected.
According to a new analysis by Zillow, the expanded unemployment benefits have had a marked impact on households suffering from the economic impact of the COVID-19 pandemic. While missed rent payments have grown – 12.4% of renter households paid no rent in the first two weeks of July – they haven’t grown as much as might be expected given record unemployment levels. Renters in the service industry actually had lower cost burdens when collecting all benefits available to them than they did prior to the pandemic, according to Zillow. And only 3% of renter households in high-risk jobs are severely cost-burdened if collecting all the available unemployment benefits.
But those benefits are set to expire around the same time that many eviction moratoriums will end. With unemployment claims remaining twice as high as the worst week of the Great Recession, that has the potential to cause a wave of housing insecurity, Zillow said.
“The boost to unemployment benefits from the federal government has played a crucial role on keeping renters afloat, and has helped insulate the rental market as a whole,” said Zillow economist Jeff Tucker. “The rate of missed rental payments hasn’t risen nearly as much as expected, and eviction moratoriums are keeping many of those unable to make payments in their homes. But those temporary measures are mostly expiring soon, so without some form of extension to the unemployment benefits boost or eviction moratoriums, we could see a widespread eviction crisis as summer turns to fall.”
Among the most vulnerable are “contact-intensive” workers – those in jobs that require a high degree of face-to-face, physically close interaction, such as healthcare and service jobs. Contact-intensive workers have been especially vulnerable to both illness and job loss during the pandemic – and they’re present in about 28% of renter households.
With the assistance provided by the government, only 3% of renter households with at least one contact-intensive earner and receiving all available benefits would spend more than half their income on rent. With the cessation of the benefits, however, 41% would spend more than half their income on rent.
This also causes disparities among racial groups. Contact-intensive workers contribute 72% of household income in Black households, compared to 53% in white households, according to Zillow. The median income of Black households with a contact-intensive worker is 15% lower than the median income of similarly situated white households.
“This means Black renters are more vulnerable to the widespread income loss prevalent in these industries,” Zillow said.
New data from advocacy group ParentsTogether Action has found that American families are feeling more anxiety over their financial situations today than they were in April and May, the period previously thought to be the height of the COVID-19 pandemic.
ParentsTogether surveyed over 1,500 parents between June 28 and July 1. Their findings paint a grim picture of the realities the average American family has been forced to endure as the country’s response to the coronavirus pandemic has gone from confusing to stupid to desperate.
Seventy percent of respondents say their families are struggling, a 12 percent increase since March and a rise of nine percent since April. Of those who believe they are eligible for unemployment, 60 percent have yet to receive any payments. Forty-five percent of families are either “somewhat worried” or “very concerned” about losing their homes once their states’ eviction bans expire. Only 56 percent of those polled said they were able to pay their rent or mortgage without cutting back on essentials like food and medicine. In April, that number was 59 percent.
While a rapid reopening of the economy was meant to get Americans back to work, many of the parents surveyed lost income for reasons other than closed workplaces. Half of the respondents who reported a loss in income attributed it to sickness, needing to care for their children, or a fear of infecting themselves or others.
No surprise, then, that many respondents support a scaling back of their state’s economic re-openings: 46 percent thought non-essential businesses should have remained closed longer; 70 percent think re-openings should be scaled back now that cases are on the rise.
How will Congress respond?
The most alarming finding was that 74 percent of those polled said they will have trouble paying for basics like rent and food without the extra unemployment benefits from the CARES Act. Those funds, which have been providing a $2,400 cushion to out-of-work Americans who have actually been receiving them, are set to expire on Friday barring further action on the part of Congress.
On Wednesday, CNBC reported that Republicans are considering extending the unemployment insurance benefit, but in a greatly reduced capacity: $100 a week until the end of the year. Democrats hope to keep the UI benefit at $600 per week, at least until 2021.
Justin Ruben, co-director of ParentsTogether, is urging Congress to put ideology aside and do what’s necessary to keep American families housed, fed, and in a position to get back on track once the pandemic is finally brought under control.
“When families struggle, kids pay the price, and right now, families are drowning,” Ruben said. “And the re-openings haven’t helped. Unless Congress acts immediately, things will only get worse as the extra unemployment checks stop and evictions start. To protect kids, Congress needs to provide ongoing economic relief, a pause in evictions, and solutions to the childcare crisis.”
Republicans are reportedly discussing a $1 trillion aid package that will include another round of direct payments for individuals and families. Senate Majority Leader Mitch McConnell has decided to introduce the Republican plan in bits and pieces rather than releasing it in its entirety, a move that will slow negotiations even further.
“Republicans have had months to propose a plan for extending supercharged unemployment benefits, and they still have nothing to offer,” Ron Wyden, Senate Finance Committee Ranking Member, told NBC News on Wednesday.
US house prices posted a drop in May – reflecting the early impact of the coronavirus shutdowns on the housing market in late March and throughout April.
House prices nationwide were 0.3% lower than in April but remained 4.9% higher than a year ago, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI).
A decline in the number of transactions driving the HPI was the reason for the slight month-over-month drop in May, according to Lynn Fisher, deputy director of the division of research and statistics at FHFA.
"The May HPI results are based on contracts for sale signed in late March and throughout April, which was a period when many states announced stay-at-home orders," Fisher said. "The number of transactions powering the FHFA HPI in May was down by just over 30% compared to a year ago, reflecting the early effects of COVID-19 shutdowns. Based on the rebound in mortgage applications for home purchases and pending home sales in May, we expect the number of transactions increased somewhat in June."
On a seasonally adjusted basis, monthly house price changes for the nine census divisions varied from -1% in the New England division to +0.1% in the South Atlantic division. The 12-month changes were positive in all division, ranging from +3.7% in the New England division to +6.3% in the Mountain division.