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Moratoriums Are Ending—How Will Mass Evictions Affect the Housing Market?

Matt Myre
3 min read
Moratoriums Are Ending—How Will Mass Evictions Affect the Housing Market?

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

But the moratorium will end on June 30—and in some states, eviction processes have already begun. Some have gone as far as actually evicting renters. Meanwhile, other states have implemented their own eviction protections that extend beyond the Federal moratorium.

Rumor has it that there could be additional rental assistance passed by Congress. But with inflation on the rise, judges challenging moratorium guidelines, and varied compliance among states, is unlikely that we’ll see any significant package passed any time soon.

With that being said, what is the current state of evictions and the progress of housing aid? When the moratorium ends, what will happen to the housing market?

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Evictions are returning

It’s estimated that the average delinquent renter owes between $5,000 to $6,000 in back rent. This amounts to what experts estimate to be anywhere from $13 to $52 billion in total back rent across the United States.

Considering the high costs of housing, the increased price of goods, and the pandemic, most of these renters don’t have much, if anything, in savings.

The bottom line: There are a lot of renters that will be facing eviction in the coming months.

As previously stated, the Federal government passed nearly $50 billion in aid for renters and landlords over the past six months alone. However, the helpfulness of that assistance has been blunted by slow administration, an overwhelming number of applications, and a lack of awareness among renters and landlords who need relief.

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

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

What’s causing the assistance slowdown?

The actions taken to prevent a massive eviction and homeless crisis in the United States did help. But that doesn’t mean everyone understood their roles when it came to administering aid.

As always, hiccups occur when directions are not provided, relief workers don’t know where to start, or the volume of applications vastly outnumbers the number of people working to send funds out. In order to assist the rental market, states had to set up the right programs, plan effectively, hire workers, assign duties, build infrastructures, and review and give determinations on applications. That’s a lot of steps—and a potential bureaucratic nightmare.

According to the CDC, for a renter to be eligible for aid, they must:

  • Be unable to make rent payments because of a substantial loss in household income or extraordinary out-of-pocket medical expenses
  • Earn no more than $99,000 in annual income during 2020 (or $198,000 if filing a joint tax return), or not expect to earn more than $99,000 in 2021 (renters not required to file 2020 taxes are also eligible)
  • Use their best efforts to obtain government assistance for rent or housing
  • Be rendered homeless if evicted
  • Do their best to make payments, whether partially or fully.

Bending through these hoops is more challenging than one would think. On top of that, verifying that the information is correct and eligible is another hurdle for the workers making determinations.

With tight budgets and the enormity of aid needed, there’s no room for error and waste. But as we’ve seen, governments are struggling to send money out in the first place.

How could mass evictions affect the housing market?

It’s never a good situation to have millions of renters on the verge of eviction. Yes, consumer confidence, housing demand, prices, and other economic data points suggest the housing market will be okay. Still, an eviction surge is never good for the economy.

Mass eviction leads to a temporary (or permanent) loss of income for landlords who may have already been strapped for cash with the moratorium. In turn, they may default on their mortgages—and investors who are underwater might take a step back and sell some properties.

If that happens, then we could have a flurry of foreclosures, potentially leading to price depreciation and ending the bullish streak of the market. But of course, depreciation equals a loss in wealth, which harms the economy.

To be clear: This is an unlikely scenario. Buyer demand is high enough that an investor should be able to unload the property on the market rather than let it default. Or at least attempt to get government aid.

But instead of ruling out scenarios because they seem unlikely or don’t make sense, we should be prepared for the most insane and unthinkable scenarios. If last year provided any evidence of this notion, then we should keep the potential realities in front of us, regardless of how much we think we know.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.