The Covid-19 outbreak has had a profound impact upon the entire world and every nation’s economy. This impact has not been isolated to the healthcare sector, but instead has affected nearly every aspect of the American economy. Over the past 9 months or so, businesses both small and large have experienced supply chain issues, lockdowns, employee absenteeism, and major sales reductions, to name a few of the struggle’s businesses have been facing. Because of these issues, the US economy in particular has faced a major rise in the unemployment rate as businesses were forced to lay off many employees.
With this rise in unemployment, many Americans have experienced difficulties meeting their rent payments. In response to this a number of orders and directives have been made. One of the most important ones was put into place by the Federal Housing Administration, who on March 18 issued a moratorium on evictions in properties that had FHA insured mortgages. This moratorium was extended, then extended again, with the current extension set to expire on December 31st. The other major order was made by the CDC (Center for Disease Control) in conjunction with HUD (Department of Housing and Urban Development). Who on September 4 put an order in place titled “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19” This order is also due to end on December 31st of this year.
With this framework established, we can talk about the particulars of the moratorium, and what it means for those who own or are interested in investing in rental property. First, let us go over exactly how the eviction moratorium works. For those covered under the FHA order its quite simple. All evictions for renters living in properties secured by FHA-insured Single-Family Mortgages are suspended. The CDC order on the other hand, prohibits evictions for “covered persons” those being people who have met a number of qualifications. The complete list can be found in the CDC document URL shown below, but to summarize individuals must have made best efforts to find other housing, earn less than a certain income annually, and would likely be made homeless or forced stay in a shared living setting were they evicted.
All in all, these moratoriums have been a good thing for renters, but many rental property owners have been facing difficulties, including increasing numbers of tenants not paying their rent. While it has been a temporary boon for those renters, when these orders end, we very well may experience a massive shock in the rental market. Many apartments will become vacant, and as of now its impossible to know how major this decrease in occupancy rates will be. We will likely experience a major growth in supply because of this, leading to an overall drop in rent rates. In addition the overall value of many rental properties may drop due to this effect.
For those seeking to invest in rental properties during this time, take a close look at rental rolls, and remember that vacancy rates may not be exactly what they seem. In addition, keep in mind that a deal made now may be at a more inflated value in comparison to what you might get in a couple months.
Financial Analyst Intern