The housing market is about to face an unprecedented crisis, as millions of Americans who aren't able to make their housing payments face eviction.
The pandemic is causing an economic crisis like no other. The U.S housing market is on the edge of a huge crisis, as many Americans aren’t able to pay their rent or mortgage.
About one-third of U.S. households have not made their full housing payments for July, and 13% paid only a portion of their rent or mortgage.
With the extra $600 per week in unemployment insurance set to expire at the end of the month, we can expect the number of defaults to increase.
JP Morgan, Wells Fargo, and Citigroup have been bracing for an avalanche of default loans because of the pandemic. They collectively set aside $28 billion in the second quarter to cover losses on bad loans.
The extra money set aside indicates that banks expect a slower economic recovery from the pandemic recession, marked by defaults. Spike in virus cases led many states to close sectors or suspend reopening plans.
The economic fallout from the pandemic does not appear on track for the quick V-shaped recovery that many had originally hoped for.
JPMorgan now predicts that the unemployment rate will remain above 10% for the rest of the year and that GDP will take longer to recover. Stimulus measures have helped keep the economy afloat, but as those programs come to an end, the economy will be in big trouble.
A vaccine appears like the only way to get out of this pandemic-induced recession.
Citigroup Chief Executive Michael Corbat said:
The pandemic has a grip on the economy, and it doesn’t seem likely to loosen until vaccines are widely available.
Economics professor Richard Wolff warns the pandemic could lead to a housing crash worse than the Great Depression of the 1930s because it hit so quickly and cut so deeply into our economy.
He noted that even before the pandemic, half of Americans weren’t able to handle an unexpected $1,000 expense. Government-mandated shutdowns made matters worse.
When mortgage or rents are not paid, landlords can’t pay off their debt to the bank. According to Wolff, we’re looking at months if not years of crushing litigations–another expense people will not be able to carry. It’s a tsunami in economic terms.
Big banks have money to cover their losses, but the average American doesn’t.
Wolff expects a surge in homelessness as eviction moratoria expire in August. Emily Benfer, a leading expert on evictions, said that the pandemic could make 28 million homeless in the U.S. between now and September.
Wolff said that the pandemic has revealed how “unsustainable” the U.S. system is:
We’re going to have this spectacle — on top of everything else happening to us — of that American situation in which we have homeless people sitting on the curb, across the street from unoccupied apartments and homes.
Renters who are at risk of being evicted need financial assistance so they can stay housed, but canceling rent is not the solution.