Experts have been warning that the financial damages the real state market has suffered due to months of mass delinquency in rental payments, in addition to the expiration of the CDC’s moratorium and the coming eviction tsunami could potentially to trigger a catastrophic economic collapse that is likely to impair the sector’s growth for years. Additionally, as natural disasters have become more frequent than ever, a market correction is looming, which means, soon enough we’ll be witnessing a housing market crash. That’s what we discuss in this video.
The increase in vacancies has put several landlords on the edge of a financial cliff. As a result, they started to do desperate concessions to find new renters. But despite those, a considerable amount of tenants across the U.S. remains delinquent and will stay that way as long as the economy hurts with lockdowns and they can’t find opportunities to reinsert themselves into the job market.
That’s why analysts are expecting a tsunami of evictions to start as soon as the CDC’s order expires. But while low-income renters housing security is on the line, on the other hand, affluent Americans started to move away from urban areas by the millions, and house sales became a sensation during the spring. The phenomenon dubbed by analysts as the Great Relocation was used as a symbol of big cities’ struggles amid the ravaging economic meltdown. In turn, the migratory movement led housing demand to soar just as high as prices.
Moreover, the health crisis was an unexpected natural disaster to hit the real state market, but according to John Macomber, a senior lecturer at Harvard Business School, our failure to acknowledge and confront climate change and several other natural disasters can also add to the list of reasons why experts forecast a collapse in housing prices and an ensuing financial crisis. In an interview with Harvard Business Review, the professor outlined that ignoring the threats associated with climate change may lead the market to a correction. That is to say, to another real state crash.
Macomber disclosed that the damages caused by climate change have accelerated faster than many people anticipated. All across the nation, there were 16 weather/climate disaster events this year, and losses exceed at least $1 billion each, with some having registered much larger figures. As the price of these properties drop due to increased risks of damages, homebuyers become more vulnerable to do tricky investments, since it enables them to make or maintain housing investments that are exposed to more danger than they realize. That’s a classic market distortion.
In other words, even though in the short-run many can benefit from propping up housing prices, the exposure to material damages consequent of natural disasters, and the eventual tightening of government budgets – after so many trillion-dollar cash spills to boost the economy – will make buyer’s investments collapse.
In areas that face such risk, housing prices will inevitably plummet. Typically, for homeowners, the equity in their property is their biggest asset. So when that asset drops in value, or case the buyers go negative – when they owe more on their house than its risk-adjusted value – they get in big financial trouble. Additionally, it’s important to keep in mind that most American municipalities get the bulk of their revenue from property taxes, which are tied to the value of homes and commercial real estate. So if home values decline, property tax receipts decline accordingly in a city’s expenses, and so does its ability to service its municipal bonds.
In simple terms, it means that the ratings of the bonds risk being downgraded, which would lead cities to cut their budgets and create other stresses on government services. That’s why a real state crash would be impactful in all of our lives. It wouldn’t just affect markets, but people’s main financial assets, retirement portfolios tied to tax-bonds, and municipal and governmental budgets. And on top of the financial and economic fallout, it would ultimately touch everyone’s pocketbook. Meaning it would exacerbate the economic deterioration millions are already experiencing and the recession could be extended for much longer than we ever considered.