The Housing Crisis Just Got Worse

What's up you guys, it's Graham here. So, we got a really unique, thought-provoking topic to cover today. Initially, I wasn't sure I was gonna be making this video because of how delicate the situation is, but after some thought, I realized it's a really important matter to openly talk about and discuss. Because the more people who are aware of this and understand both sides of the situation, the better we could come to a solution.

So, of course, as you might already be aware by the title of the video, I'm talking about the newly implemented eviction ban that just went into effect, which prevents homeowners from evicting tenants until the end of the year or, in some cases, until the beginning of 2021. Now, on the surface, it might just seem like an open and shut case: evictions are banned, it is what it is, end of story, let's move on. But this could have some very long-reaching consequences in the near future, not only for real estate investors but also for tenants and the entire housing market.

And when it comes to topics like this, I certainly take a very close look and analyze all the details of every aspect and outcome because real estate is where I began my entire career. I've been a real estate agent for over 12 years now. I own and manage seven rental properties, and I make videos talking about, you guessed it, real estate. So, in a way, it's my job to know what's going on and discuss the topics that I think are worth mentioning and bringing to light.

But it's also my job to politely ask you to press that like button for the YouTube algorithm until it changes color. Because the more likes the video gets, the more YouTube could push it out to a new audience who can also press that like button for the YouTube algorithm. So thank you so much for doing that, it really means a lot, I really appreciate it. And with that said, let's begin the video right here.

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And now, we'll start the video.

All right, so back to the video, and here's what's going on: on March 27th, the two trillion dollar CARES Act was signed into effect, and one of those provisions was a 120-day rent freeze. The thought behind this was, with mass unemployment and a lot of businesses being shut down, a lot of people are going to be without a job or a source of income. And even though the extended unemployment benefit should cover most, if not all, of the average worker's salary, not everyone would be eligible.

And a four-month eviction freeze would give us enough time to figure out the next course of action. However, here's the thing: the eviction freeze does not forgive rent. So, once the eviction freeze is over, the tenant is still going to owe the entire amount of back rent, and the end result is likely to be still the same thing—eviction. That's when we begin seeing headlines calling for this upcoming wave of mass evictions and mass homelessness. It's about to ensue once landlords seek evictions for non-payment of rent, once the rent freeze expires.

And that happened just recently. Listen, I'll be honest, it was a bit like the perfect storm where you have a whole bunch of red flags happening all at the exact same time. We had the end of the $600-a-week unemployment benefit, the end of the eviction freeze, and the start of foreclosures all in the same week. If nothing was done, that’s when the president passed his executive order on the subject of today’s video—the eviction memorandum.

And of course, this is where things get interesting: the executive order itself does not ban evictions at all. In fact, when it comes to evictions, it really does nothing directly. But it does give the power to the Secretary of Health and Human Services and the Director of the CDC to consider whether or not halting evictions is reasonably necessary to prevent the further spread of the illness.

And as of the other day, they determined that, yes, evictions are not only a financial concern but they're also a health concern. If you make under $99,000 a year, with this new eviction freeze, it applies to all rental units until December 31st. And this applies to anybody who received the stimulus check, is single earning $199,000 a year, or is married earning under $198,000 a year.

Now, in order for this to go into effect and for you to be protected from an eviction, you have to sign and self-certify that you cannot afford to pay the rent in full, you expect to make less than $99,000 this year, and that if you get evicted, you would become homeless and forced to move into congregate housing. It also says that renters must be able to prove that they made an effort to receive government assistance and that they could not afford rent.

Now after reading through the entire memorandum, it became apparent that the reasoning behind this was that, as people move out of their houses and into close contact with other people, they risk exposing themselves to the illness and then spreading it to others. So, the motivation behind this is for the health and safety of all of us as a society.

However, the eviction ban does not apply to tenants who are violating the lease through criminal activity, threatening the health and safety of the other residents, damaging or posing a significant risk of damage to the property, or violating any other contractual obligation to the lease other than the timely non-payment of rent. Timely non-payment—I meant to say the timely payment of rent.

Now, the tenant must also self-certify that they're doing their best to make timely partial payments as close to the rental amount within their means. Now, this one is rather subjective to say what's reasonable and not reasonable given the circumstances, but they leave that to you to decide.

The big problem with this though is that once this is all over, the rent is still due, and then we're back at square one. Even though this is a fix right now, it’s more like kicking the can down a little bit further so that we’ll just deal with it in the future. But it doesn't really make the problem go away.

This memorandum has also been heavily criticized by real estate groups who argue that landlords are now subsidizing the cost of housing for the government. That's because, regardless of whether or not a tenant pays rent, landlords are still going to have to bear the cost of ongoing expenses like property taxes, insurance, maintenance, and repairs. And those expenses will all still need to be paid even if they're already in mortgage forbearance.

Now, the president of the National Multi-Family Housing Council said that a better solution would have been a dedicated long-term funding for rental and unemployment assistance. That way, the responsibility is not going to fall on the landlord to provide housing with really no recourse once the eviction freeze is up over ever collecting any rent.

The thinking is that if a tenant is behind on their payments with no job, no income, and they cannot afford the rent, the situation is likely to only get worse over time. And by the time January comes around and the eviction freeze is over, the tenant will have accrued way more back rent that they will be unable to pay. So, in most situations, it's unlikely that any back rent is going to be recovered.

Now, I totally get the argument that investing in real estate is a risk that you need to accept and there's no guarantee you're ever going to make any money just because you own a house, and that’s very true. But in a normal economy, your risk that a tenant doesn't pay the rent is limited to the time it takes to file for an eviction so you can get another tenant in there. It's really no different from a taxi driver whose car breaks down. They got to take it into the shop, it gets fixed, and some time goes by, and then it's back in business.

But this situation is so unique because a landlord doesn't have the typical recourse they would in any other market, and they're forced to continue making their payments and providing a service as usual without receiving anything back to help offset those costs. And I get it, there's a lot of misconceptions out there that landlords are parasites and just the fact that a landlord is able to own a property to begin with means that, most likely, they're in a better financial position than most.

And hey, that can absolutely be true. But there's also a very unique, symbiotic relationship that exists between landlords and tenants that only exists when one party trades value for another. For instance, a landlord might be able to give someone access to live and use a property that they otherwise would not have been able to afford, and they also do all of that without the worries and hassles of home deterioration and maintenance that otherwise the tenant would have to pay for.

Now, sure, there are absolutely bad landlords out there; I won’t disagree with that. But the vast majority of landlords that I have met are normal working-class people who happen to buy a property and barely make any money with the expectation that, 30 years from now, the home is going to be paid off in full.

It's really important for me to mention this because there's no good guy or bad guy here; we're all people, and it's up to us to do the best that we can with the situation that's dealt to us. That's why it's so important to try to see the perspective of both sides and not so much just one or the other.

But now, of course, let's just talk about what this means for everyone watching. Now, from a numbers standpoint, a Harvard study found that there are 43 million renters in the United States, and the National Multi-Family Housing Council—try saying that five times—found that overall, most tenants are still paying the rent even after the unemployment benefit ended. They collect data from over 11 million apartments every single month, and as we could see last year, about 96 to 97 percent of tenants have paid their rent in full by the end of the month.

This year it's hovered more like 95 to almost 96. Even as recent as August 27th, 92.1 percent of tenants have paid the rent in full; that's only slightly below the 94 that paid rent in full by the same time last month. Now, keep in mind this does not count partial payments or payment plans, but overall, as you can see, missed rent really hasn't changed that much over the last year, with the exception that now non-paying tenants can no longer be evicted.

That means, if we have about 43 million renters and six percent of them are not paying their rent in full, that works out to be about two and a half million renters who are behind on their rent and protected from eviction. And that works out to be 400,000, or one percent, more than we had at the same time last year pre-illness. The only variable here is that now the extended unemployment benefits have been significantly reduced, and previously I wouldn't be surprised if that helped boost up some of these numbers temporarily.

So, the full extent of this could be way worse than what we see right now, but it's still too early to tell. Now, from a real estate standpoint, it's definitely concerning, and I wouldn't be surprised if we just kept kicking the can further and further down the line, just delaying the inevitable until eventually a better solution is offered. But it's also unclear how many small-time landlords just have the financial means to stay afloat until that happens.

Now, the good news or the silver lining here is that we're unlikely to see a mass wave of foreclosures because, overall, the majority of homeowners have significant equity in their homes. This study found that 6.2 percent of mortgages are underwater, meaning the homeowner owes more in the home than what the home is actually worth. And those would really be the only homes that would be candidates for foreclosure because otherwise, the homeowner would just be able to sell the house, get the proceeds, and then use that to pay off the loan that they have.

Now, if we want to look at this in terms of real numbers, we could see that there are 128 million households in the United States, and 60 percent of those have mortgages. That gives us 76.8 million mortgages. Six point two percent of those are underwater, and that gives us 4.7 million homes at risk of foreclosure, or about right now, three percent of the entire market.

Now, this is not necessarily good news, but it's still way better than a lot of headlines will lead you to believe. That's why I think this is unlikely to lead to any sort of catastrophic real estate collapse in the near future. But it does mean that some people, both landlords and tenants, will be hit very hard.

And here's what at least you could do about it.

Now, as a tenant, understand that you still owe the full amount of back rent when the eviction freeze is over and that the landlord may pursue that in court. Knowing this, it's better now to try to structure some sort of payment plan ahead of time to try to avoid this from happening. And certainly not all, but many landlords are just like you, without a source of income, with overhead expenses they have to pay, and they also risk losing their home without a means to make up those payments to the bank.

And as a landlord, evictions suck; they're time-consuming, they're expensive, they're hard on everybody, and avoid them at all costs. A simple solution, if you want your property empty, is just called cash for keys, where you will negotiate with your tenant to leave the property voluntarily by a certain date. It might cost you money up front, but if you're unlikely to receive any money in the future anyway, it might be worth a shot.

Or, even though you can't proceed forward with an eviction, I would encourage you to be as open with your tenant as possible and try to work out some solution where you get something and the tenant might be able to continue to stay. Even if you know the tenant's just gonna leave as soon as the eviction freezes up, it's better to get something now than nothing later.

And if you don't have the means to make the mortgage payments to the bank, look at the potential mortgage forbearance or any sort of loan assistance deferral programs that might allow you to add those missed payments into the end of the loan. I would also hope at some point there might be similar freezes in effect for the mortgage payment and property taxes to try to mitigate some of the costs for the landlord.

But until that happens, if ever, the best thing we could do is bring awareness to the situation, understanding that most likely there's never going to be a situation where everyone is happy, and we can all work together to try to find a happy resolution as best as we can.

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Thank you so much for watching, and until next time.