How the Eviction Moratorium is Affecting the Housing Market

When the COVID-19 pandemic first began to spread—specifically, March 2020—the United States and many other countries around the world experienced one of the most dramatic short-term economic shocks to date. However, unlike the economic shocks witnessed in years past, including the Great Depression and the Housing Crisis, the sudden introduction of extreme volatility and unemployment was not caused by any single component of the economy but rather, a global disease.

Quickly, the government was able to pass the Coronavirus Aid, Security, and Economic Security (CARES) Act which, in addition to giving direct cash payments to a large portion of American households, placed a temporary ban on evictions at all federally backed rental properties. Additionally, many of the nation’s states and cities passed additional eviction moratoriums and other comparable measures.

Over the course of 2021, the moratoriums began to expire—most notably, the federal moratorium outlined in the CARES Act expired on July 24, 2020. While the CDC later ordered a temporary halt, this order was eventually ruled to be a government overreach which, once again, created a situation in which American renters could be legally evicted.

Undoubtedly, whether or not a landlord has the right to evict a tenant will have a major effect on the housing market. Keeping that in mind, how has the eventual end of the eviction moratorium impacted the American housing market?

Across the Board, Rent has Increased—but Will That Continue?

According to the Single-Family Rent Index (SFRI), year-over-year rent increases for single-family properties reached an all-time high of 10.2 by September of this year. This increase was visible in almost every market across the country but was particularly visible in the fast-growing sunbelt, along with high-tier rental properties (properties that rent for more than 125 percent of the market average).

Broad increases in rent have many underlying causes, including inflation, widespread distribution of cash payments throughout the pandemic, and others. Data from the Federal Reserve indicates that rent increases were actually the strongest during the eviction moratorium—this is likely due to the fact that landlords, knowing they would not be able to either collect rent from or evict certain residents, raised prices elsewhere in order to compensate. But now that the moratorium has come to an end, it is unclear if the upward pressures on rent will continue, or at least continue at the pace they once did.

Evictions Have Begun to Increase

To help combat the risk of eviction, the Federal Government issued a significant rent relief package though, for a variety of reasons, just 10 percent of allocated funds had actually been issued by the time the moratorium was lifted.

At the time, Goldman Sachs predicted that about 3.5 million households (or about 8 million people) were at risk of becoming evicted. “The strength of the housing and rental market suggests landlords will try to evict tenants who are delinquent on rent unless they obtain federal assistance”, one analyst predicted, stating “This reduces the incentive for landlords to negotiate with delinquent tenants or wait for federal aid.”

An analysis from EvictionLab—an organization that tracks evictions and related statistics—indicates that, as expected, the lifting of the eviction moratorium has resulted in an increase in evictions in nearly every jurisdiction. Cities that have enacted an additional moratorium, just as Boston, Austin, and New York, have witnessed fewer evictions. The states that currently have a moratorium—New York and New Jersey—also have lower eviction rates. Some evictions have caused families to change their current living situation, with many moving into multi-family living situations for the very first time.

Property Values Have Continued to Rise

During the housing crisis of 2007-2009, property values experienced a significant drop in value, which would not be recovered until around 2016. However, a quick look at the S&P/Case-Schiller US National Home Price Index—a strong indicator of the real estate market, as a whole—indicates that, throughout the COVID pandemic, residential property values have been surging.

In fact, according to the index, values have increased every single month throughout the pandemic, with little sign of slowing down as the moratoriums began to get lifted. The continued rise in property values is, undoubtedly, strongly connected to the current inflation rate (which is 6.2 percent year-over-year, the highest it’s been since 1990). But because home price increases were strongest while the eviction moratorium was in place, it seems that it is inflation and widespread supply shortages—not the eviction moratorium—that will be the primary drivers of future rent increases.

Real Estate Syndicates are Finding New Opportunities

In response to increasing property values—along with a slight decrease in market volatility—real estate investors have begun seeking a wide range of new, diversified opportunities. To some extent, property values are largely kept by high by a genuine housing shortage, which means that—regardless of whether or not there is an eviction moratorium—the need for development will continue to persist.

Multi-family rental properties can likely be expected to be particularly popular, given that these properties are often the easiest entry point for people who have recently been evicted or foreclosed on from previous, more expensive residences. Furthermore, as the large reserve of rental assistance continues its gradual distribution to renters, the need for eviction might eventually begin to wane.

Of course, even with the market clearly moving in a specific direction, it remains important for syndicates to continue analyzing opportunities on a property-specific basis, and continue constructing a robust, diversified portfolio. There will always be some investments that have much stronger potential than others, which is why having access to an experienced and knowledgeable syndicate sponsor will continue to be very important.

Conclusion

The end of the eviction moratorium has generated several economic problems—the risk of eviction for 3.5 million American households is, certainly, not something to be desired. But nevertheless, these sudden changes will fuel the proliferation of new real estate investment opportunities, at least for those who can successfully navigate a rapidly changing landscape.

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