Hundreds of thousands of Americans over the past year and a half have relied on Federal benefits to help them get through pandemic-related challenges. After unemployment jumped to nearly 15%, emergency support was critical to supporting those in need. But those benefits are coming to an abrupt end on Labor Day, leaving an estimated 8.4 million Americans who remain unemployed in a tough position. Here's how this could impact real estate investors.
7 million people will say goodbye to unemployment
Federal moratoriums prohibited landlords from being able to initiate foreclosure or eviction on borrowers or tenants who were behind on their mortgage or rent because of COVID-19-related job loss or illness, but those expired at the end of August.
And now, jobless Americans can say goodbye to their unemployment pay. This includes the weekly bonus pay as part of the Federal Pandemic Unemployment, which initially paid $600 to qualifying unemployed individuals but was later reduced to $300 extra per week in September 2020; the Pandemic Emergency Unemployment Compensation (PEUC), which provided unemployment benefits to those who have claimed full benefits as well as self-employed and freelance workers who normally wouldn't qualify for unemployment; and the Mixed Earners Unemployment Compensation, which provided an additional $100 to those who were a mix of self-employed and independent contractor.
Although 26 states pulled out of the additional benefits before the Labor Day expiration, reducing benefits for roughly 3 million people, now that the benefits are expiring on a Federal level, as many as 7.5 million people could lose their unemployment income completely. Normal unemployment benefits provide financial assistance for a set period of time, as much as 26 weeks. PEUC allowed those who still needed assistance to continue to receive benefits beyond that period, in addition to including people who normally would have been excluded from receiving benefits to begin with.
How will this impact real estate?
An estimated 1 in 7 tenants are still behind on their rent, according to a recent survey conducted by the Center on Budget and Policing Rights. The National Multifamily Housing Council saw 76.5% of all rents collected by months end July 2021, a roughly 3% decrease from pre-pandemic levels of July 2019. That's a lot of people who are at risk for losing their home if financial support isn't continued.
There's a strong chance we'll see defaults on rent and mortgage payments tick up again starting in September or October as people struggle to find a solution to their unemployment. A large number of tenants who were behind were able to catch up fully if not partially through $45 billion allocated in the emergency rental assistance (ERA) program which has paid billions of dollars in back rent to landlords.
But the expiration of unemployment benefits could cause many of these tenants to default once again. The difference now is that landlords in most states can file eviction or initiate foreclosure, which could lead to a surge of available housing, bringing rental rates and asking prices down, something most tenants and prospective buyers would greatly benefit from.
Only time will tell
Like most things relating to the pandemic, and life, only time will tell how this plays out in the market. There is a good chance individual state or possibly federal protections will be put in place to continue providing financial support to those who need it. However, this could take weeks to months to pass through bipartisan approvals, if passed at all.
We may also see a sudden uptick in new hires as the currently unemployed seek emergency employment, even if it's outside their field of study or experience level. This would offer financial support and relieve many of the industries suffering from a labor shortage.
Some feel unemployment benefits were causing the current labor shortage, which has been felt nationwide across a wide range of services and industries. But there's no concrete evidence that this has been one of the core causes. Other factors include the inability to find adequate and affordable childcare, which remains a major issue particularly as many schools return to a virtual setting after the rise in cases of the delta variant.
The real estate market will definitely feel repercussions from the expiration of these benefits, but exactly how and where is yet to be determined.