Home / Markets News & Opinions / Housing Market / Stimulus-Induced Stock Crash? No, Housing Market Faces Real Freefall
Housing Market
4 min read

Stimulus-Induced Stock Crash? No, Housing Market Faces Real Freefall

Published October 7, 2020 3:02 PM
Joseph Young
Published October 7, 2020 3:02 PM
  • The housing market is at risk of a severe crash after President Trump delayed stimulus talks until after the election.
  • A study from Princeton and MIT researchers found that 30 to 40 million renters might be at risk of eviction.
  • The lack of stimulus and a gloomy outlook for real estate leaves home prices vulnerable to a correction.

The housing market is in trouble after the Trump administration reaffirmed it is moving away from stimulus talks until post-election. While Trump seemed to flip-flop on the idea Wednesday morning, the president is open to signing a slimmed-down stimulus bill in the near term.

Strategists see an impending pandemic-induced stock market crash, but commercial real estate and residential housing have enormous capitulation risks.

In the short term, the CDC’s national eviction moratorium could prevent a housing crisis. But entering 2021, landlords risk a sharp increase in renters unable to make rent payments.

housing market
The number of renters at risk of eviction. | Source: Study from Princeton, MIT researchers 

Housing Market Executives Condemn “Extraordinarily Reckless” Action to Delay the Stimulus

Initially, the housing market expected a fundamental boost to the housing market. Aid to small businesses and direct stimulus checks would allow business owners and renters to pay rent through October.

The unexpected delay of a new round of stimulus has put massive pressure on properties.

Consequently, the housing market could soon face a sharp increase in renters struggling to pay rent.

Markets reacted violently to President Trump’s tweetstorm about the stimulus. Watch the video below:

According to MIT, Princeton, and Aspen researchers, 30 to 40 million people risk missing rent. 

The researchers noted that the U.S. might face the most severe housing market crash in history:

The United States may be facing the most severe housing crisis in its history. According to the latest analysis of weekly U.S. Census data, as federal, state and local protections and resources expire and in the absence of robust and swift intervention, an estimated 30–40 million people in America could be at risk of eviction in the next several months.

Based on these figures, executives in the real estate and housing sectors said delaying stimulus discussions was highly irresponsible.

Diane Yentel, president and CEO of the National Low Income Housing Coalition, said there is an urgent need for emergency assistance.

Yentel warned that many renters and landlords are currently “struggling,” and renters now face a “financial cliff :

It’s extraordinarily reckless and irresponsible for Trump to blow up negotiations now, when so many renters and small landlords are struggling and when there is growing bipartisan agreement on the urgent need for emergency rental assistance. The longer the federal government waits to act, the steeper the financial cliff that renters will be pushed off when the eviction moratorium expires this winter.

Atop the risk of mass evictions, strategists are also warning against overvalued markets across Europe and the U.S.

Bad News After Another: Analysts Now Warn a Housing Bubble

UBS Global Wealth Management conducted a study of 25 major cities and their housing prices. The study found that out of the 25 cities, over 50% are at risk of facing a housing market bubble. 

In a note obtained by CNBC, UBS researchers wrote:

Rents have been falling already in most cities, indicating that a correction phase will likely emerge when subsidies fade out and pressure on incomes increase.

Struggling renters and tenants, combined with a potential correction in home values, could weigh heavily on the housing market.

The price of gold on a daily chart. | Source: TradingView.com 

Other “hard” assets alongside real estate, such as gold, have also struggled in the past week.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.