These are indeed strange times for the residential real estate market. Prices for residential homes are skyrocketing in nearly every geography and across all sectors. The historic low supply of residential housing is causing chaos across the country for both home buyers and renters alike. It would have been difficult to predict this situation a year ago.
Meanwhile, as the boom in home prices continues, unemployment remains at elevated levels in many states. Each state is implementing its own plan as to how and when businesses can return to full capacity. While many homeowners are experiencing significant wealth gains due to increased real estate prices, many individuals around the country are still out of work and are struggling with housing stability.
It is quite a juxtaposition of two very different markets. One segment of the market – primarily upwardly-mobile residential homeowners – are experiencing a boom. While another part of the market – generally low-income renters – continue to struggle with making payments. This dynamic was recently discussed in an article published on CNBC.com. As the dilemma was covered in the article, “Even as the public health crisis fades, more than 1 in 7 adult renters in the U.S. still say they’re behind [with rent payments]. With the national eviction ban set to expire in weeks, housing advocates say it’s vital the [rescue] funds are given out quickly.”
Since the adverse effects of the pandemic first began in early 2020, the US government has actively intervened in the residential mortgage and rental markets with subsidies and eviction bans in order to support the newly unemployed. This past week, the US Treasury signaled that the support will continue. As covered in the article, “The Treasury Department announced on Friday [May 21] that it’s given out more than $6 billion to help renters and landlords struggling in the pandemic. In total, Congress has allocated more than $45 billion to clear up the enormous arrears racked up by renters after a year of historic unemployment.”
It is interesting to note that this financial aid is available to both renters and landlords. Due to the surprise nature of the pandemic, the government needed to get financial aid out to the community quickly. Unfortunately, there were few prior precedents to follow on how to distribute these funds. The original plan was to distribute funds to property owners (landlords) under the expectation that the funds were to be used as a replacement for lost rental income. However, it quickly became apparent that not all landlords followed this plan. As pointed out in the article, “The aid typically goes to the property owner [landlord], although organizations can give the money directly to renters if their landlords refuse to cooperate, as some are doing.”
The fact that businesses across the country are beginning to open is positive news for the entire US economy. Hopefully, this will go a long way to alleviating the high unemployment rates still being experienced by many. However, it may be some time before this is all sorted out and the economic effects of the pandemic on low-income rental housing fully recede.
Steve Sapourn is an active real estate investor, Aloha Capital’s co-founder, and portfolio manager. At Aloha, Steve has overseen more than 1300 real estate investor loans in 35 states. He has managed alternative investments in a variety of asset classes for over 25 years. He has deep experience in designing low-risk portfolios that reliably outperform benchmarks. Over his career, Steve has served as portfolio manager for a Fund of Funds, where he analyzed hundreds of alternative investment strategies. In addition, he has developed and implemented quantitative trading strategies in the futures, stock, and volatility markets. Steve’s long and diverse career benefits Aloha’s investors.