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Newsweek: If Unemployment Benefits Expire, America Could Face An 'Abrupt' Housing Crisis

July 24, 2020

By Jenni Fink

Federal unemployment benefits are set to expire at the end of the week, and experts worry that without a significant extension, America could face an immediate housing crisis and potentially a second, longer-term one.

The Coronavirus Aid, Relief and Economic Security (CARES) Act that Congress unanimously passed in March expanded state unemployment benefits by $600 per week, but the last of the checks will be sent out Saturday and Sunday. More than 16 million people remain unemployed, and the White House has indicated that unemployment benefits could drop to 70 percent of a person's regular wages.

A loss in wages requires people to either dip into savings to cover their expenses or make sacrifices. A Household Pulse Survey found that about 3.1 million people who had someone in their household lose income worry about how they'll pay their mortgage next month. Delinquent mortgage payments can spell trouble for the economy, but experts' immediate concern is how people will pay the rent.

"What happens when you can't pay your mortgage and you lost your job and have an economic hardship, you sell your home. So we could see a glut of homes for sale, and that will have its own devastating effect on housing prices and wealth, but that's a slow-moving crisis relatively speaking," Wendy Edelberg, director of the Brookings Institution's Hamilton Project, told Newsweek.

"The abrupt crisis staring us in the face is an eviction crisis among renters," she said.

More than 5.6 million people recently used unemployment insurance to meet their spending needs, according to the Household Pulse Survey. And more than 4.5 million people who had someone in their household experience a loss of income have no or only slight confidence in their ability to pay next month's rent.

Allowing the expanded unemployment benefits to expire, Edelberg said, means households in already fragile states will be pushed farther toward the edge of a cliff.

"We have an urgent crisis right now that policymakers should be laser-focused on," she said. "After we get through this crisis, we're going to be left with a weakened economy, and that's going to take us, in my mind, years to recover from. Not months, not quarters—years."

Professor Richard Green, director of the University of Southern California's Lusk Center for Real Estate, sees an end to expanded unemployment benefits having an "enormous impact," because if people "don't have the cash, they aren't going to pay their rent."

Homeowners, in general, are more financially stable than renters, Green said, and millions of people don't have a month's worth of rent in their checking account.

Although the immediate concern is with renters being able to afford their housing, every missed rent payment is money a landlord, who may have a mortgage to pay, isn't receiving. Edelberg said that landlords could sell their property rather than facing foreclosure, but an influx of homes on the market could be a "slow-moving problem."

A 10 percent drop in rent collections, which Green said is "entirely possible" given the unemployment rate, could fall within a landlord's debt cover ratio, meaning the person could still pay the mortgage. But in areas like Las Vegas, where unemployment surpassed 25 percent in May, more than double the national average, entire buildings could have large numbers of renters unable to pay their rent.

In that case, if rents were to drop by 40 or 50 percent, Green said, landlords wouldn't be able to pay their rent. For mortgages to turn into a crisis, it only takes defaults falling into the 5 to 10 percent range.

Fortunately, people are in a saving mode, and lending practices are different from what they were a decade ago, so experts didn't foresee the crisis getting to 2008 levels anytime soon. However, they both stressed the need for Congress to act to prevent the situation from spiraling out of control.

Among the measures that need to be enacted is continuing support for small businesses, rental assistance and an extension of the expanded unemployment benefits.

"It would save the renters, landlords and lenders, and we're borrowing at zero interest right now," Green said. "It seems like a no-brainer."

The original article can be found here.