Are post-Covid Evictions and Foreclosures Something to Fear?

Question:

Given the pandemic and rising mortgage rates, why aren’t we seeing a tidal wave of evictions and foreclosures?

Answer:

Worries about a real estate disaster because of Covid are both genuine and – so far at least – wildly overblown.

The Consumer Financial Protection Bureau (CFPB) estimated in 2021 that “11 million renter and homeowner households were significantly overdue on their regular housing payments as of December 2020, placing them at heightened risk of losing their homes to foreclosure or eviction over the coming months.”

There’s no doubt that 11 million troubled households is a big number. A huge number. And yet not much has happened. According to the Federal Reserve Bank of Philadelphia, large bank consumer mortgage balances that are at least 90 days late have actually fallen since 2019, the period before the pandemic began. In the third quarter of 2019, just 1.38% of all mortgage accounts were 90 days late. By the third quarter of 2022 we were down to 1.24%.

How did this happen?

Well, first, not everything has been so dandy. In 2020, 90-day “lates” started at 1.23% in the first quarter and reached 3.28% in the fourth quarter. Even this last percentage was not especially troubling – in comparison, “lates” had reached 7.33% in 2012. The situation with renters has been similar.

“Despite the continuing COVID-19 pandemic and the sharp rise in inflation,” explains the Urban Institute, “many renters have weathered the economic crisis better than expected. The job market’s fast recovery and timely government benefits such as unemployment insurance and emergency rental assistance have allowed renters in properties owned by mom-and-pop landlords to largely continue making on-time payments during the past three years.”

The pandemic struck in 2020 and in that year we had both a two-month recession and more than 20 million people suddenly joining the unemployment rolls. As a result the economy seemed ripe for massive numbers of foreclosures and evictions.

What saved the day was that the federal government rolled out multiple programs to offset the downturn.

According to the Peter G. Peterson Foundation, the

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By Peter G. Miller

programs included such programs as $968 billion for small businesses (think of the Payroll Protection Program (PPP) that kept millions of businesses afloat), $411 billion for economic stimulus payments (such as $1,400 checks for individuals), and $764 billion for expanded unemployment compensation.

For the people who lost their jobs and the small businesses that tried to stay open, the federal programs were lifesavers. In addition, people hunkered down financially. Commercial bank deposits between the start of 2020 and January 2023 grew by more than $4.5 trillion.

Between federal programs, swiftly rising home values, federal and state eviction and foreclosure bans, and cash in the bank, few people lost their homes or were evicted.

We don’t know what the future will bring, but so far – and much to the surprise of many – evictions and foreclosures have been rare. Let’s hope this continues to be the case.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.