Real Estate Blog - Appraise & Apprise - William R Hall, Alpha Valuations

HI.  Remember me? well, it has been a while.  In my defense, these past two years have been the busiest of my twenty years in appraising.  Who knew a pandemic would fuel the real estate market the way it has.  Unprecedented is barely an adequate representation of what we have experienced.  Not everyone tied to real estate has benefitted, however.  Below is a well written research piece about the immediate and long term effects of the eviction moratorium that was put in place early in the pandemic. Thanks, Marko!

Have a Happy Halloween and Make it a Great Day!

Eviction Moratorium Impacts on Real Estate
Written by: Marko Ilic

In March 2020, caused by exponential rises in COVID-19, nationwide eviction moratoriums were passed, temporarily halting the ability for landlords to evict tenants. The reasoning behind the move, passed by Congress in the CARES act, was due to the widespread economic slowdown and subsequent increased financial stress on many Americans. After multiple extensions of the law, A 6-3 Supreme Court ruling effectively ended the nationwide moratorium on August 26, despite pushback from certain states. 5 states: New York, Minnesota, New Jersey, New Mexico, and Washington, in addition to the District of Columbia, implemented their own independent guidelines which largely still protect tenants, yet still allow for certain evictions, specifically for residents with unpaid financial obligations. 

Implications for Tenants

In spite of slowing COVID-19 rates nationwide, the economic impact it has left on Americans is still largely prevalent. According to a Wall Street Analysis, nearly 2.5-3.5 million households are struggling to meet rent, with 750,000 evictions estimated by the year’s end (Goldman Sachs). A critical reason for the tenant financial crisis is government incompetence in distributing funds allocated for renters. As Washington D.C prepared for the moratorium’s end and its consequential impact on possible evictions, 46.5 billion dollars in relief money was set aside for financially stressed tenants. Even with the absolutely mind-boggling amount of money allotted for renters, a measly 5.1 billion, only ~11% of funds, have been distributed. Without promised aid, many tenants will be forced into eviction without the financial means around it, and it could result in many small landlords taking large financial losses for each eviction. An estimation by the Federal Bank of Boston puts each eviction for landlords as a $2500 - $13000 loss. If aid does not come faster for tenants around the country, large changes to the housing market will ensure. 

Adverse Effect on Landlords

If eviction does rise exponentially, as analysts predict, many small landlords - similar to small businesses, will go out of business. With each eviction financially bleeding landlords, in addition to the lack of revenue many have experienced over the past 18 months, a large portion of property owners will not have the finances to continue paying taxes, as well as utilities, management, and marketing fees. The continued financial stress on these small landlords will force many to sell their properties, with all-time high property prices making offers more lucrative. Larger corporations like banks, investment firms, and pension funds have begun to snap up property at increased rates, ostracizing small landlords in residential real estate who simply do not have the financial resources to continue management of their properties. While many landlords will be forced out of their livelihood, exorbitant prices paid for their properties will sweeten their exodus from the market. 

Rental Market Shift

With home prices still at all-time highs, the appeal for renting is still rising and seems to have no slowdown. Many people around the country not only do not have the money to lay down for mortgages and commit to permanent properties, but many are simply not appealed by the highest home prices in history. This combination seems to make rental properties still largely effective and lucrative investments, but the locations of trending rental properties may shift. In states with prices at all-time highs, specifically metro areas in New York and California, renters are moving to more affordable, semi-rural areas. Hottest markets include Rochester, NY, Burlington, NC, and Jefferson City, Mo. Migration out of metro hubs to more suburban areas could have large implications for prices within both, as metro areas like New York have already seen cuts in rents with fleeing tenants. Increased growth in under-developed areas could allow for the introduction of new rental hotspots, with states like North Carolina being the most notable beneficiary of escaping tenants of the upper East Coast. While there may be a relocation from urban centers to less-known destinations, one thing is certain, all-time high home prices are making renting the most viable option for financially-strapped Americans around the country, and residential real estate will likely continue to ride the bullish wave of market prices. 


 


References & Sources

Ratiu, G. (2021, October 18). September 2021 Hottest Housing Markets. Retrieved October 18, from https://www.realtor.com/research/topics/housing-demand/

Clifford, T. (2020, July 31). A surge in evictions could turn into financial crisis, economist warns. Retrieved October 15, from https://www.cnbc.com/2020/07/31/economist-a-surge-in-evictions-could-lead-to-financial-crisis.html

Ziady, H. (2021, August 2). Wall Street is buying up family homes. The rent checks are too juicy to ignore. Retrieved October 15, from https://www.cnn.com/2021/08/02/business/family-homes-wall-street/index.html

Rappeport, A.Thrush, G. (2021, August 25).About 89% of Rental Assistance Funds Have Not Been Distributed, Figures Show. Retrieved October 16, from 
https://www.nytimes.com/2021/08/25/us/politics/eviction-rental-assistance.html

Ivanova, I. (2021, September 2). With eviction moratorium gone, 3.5 million U.S. households could lose their home, Goldman Sachs estimates. Retrieved October 14, from https://www.cbsnews.com/news/eviction-moratorium-ends-families-risk-losing-homes-analysis/

Smith, D.Colby, C. (2021, September 3). The federal eviction moratorium is gone. What renters should know now. Retrieved October 16, from https://www.cnet.com/personal-finance/the-federal-eviction-moratorium-is-gone-what-renters-should-know-now/