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Housing Crisis in the United States

Staying Home Without a Home

As almost all Americans are told to stay at home, millions are now unemployed and must scramble to figure out how to pay for that home. It is ironic that the one thing they are told to do is preventing many from doing the one thing they need to do. While the continued spread of the coronavirus puts most of the US economy at a stalemate, many are wondering how the pandemic will affect the housing sector.

What’s Happening?

The bursting of the mid-2000s housing bubble, specifically the subprime mortgage crisis and the damage it caused the US financial and banking sector was one of the large contributors to the Great Recession. The Fed responded to this by re-inflating the housing prices with highly stimulative monetary policies over the past decade, namely: quantitative easing and zero-interest return policies (ZIRP). Yet we stand today, amidst the coronavirus pandemic, at the brink of a global recession and a second US housing crisis.

The actions of the Fed over the past decade has led to an artificial boom, and like all artificial booms, the US housing prices have been consistently rising much faster than overall inflation, rents and wages, just like it did in the last housing crisis. The housing market has come to the spotlight as the government grapples with the economic reverberations of the coronavirus pandemic.

Housing prices have plummeted in many cities, with the median sales prices increasing by over 50% from 2009 to 2019 in New York and Washington DC. Rent prices have also continued to rise, increasing by 150% from 2010. For those working full time, but earning a minimum wage, it is nearly impossible to rent a two-bedroom house without being cost-burdened.

Who is affected by this?

This housing crisis has led to a huge increase in homelessness. There are over 550,000 homeless people in the US, but millions more are housing insecure: this means that they spend a large portion of their income on mortgage or rent, or live in poor or overcrowded living conditions. A majority of these households cannot build up any kind of savings, or a rainy-day fund, which means that as soon as these people lose a job, they can’t tend to their monthly needs. For the millions of workers who have lost their jobs due to the coronavirus-associated lockdowns, this has become a stark reality.

The US federal government sent stimulus checks to people earning below $99,000 and couples earning lesser than $198,000, as well as put a 120-day debt moratorium on evictions in homes that are covered by federally backed mortgages or for renters in federally subsidized apartments.

Many areas that are likely to be hit the hardest are those that were already at risk prior to the coronavirus pandemic. Determinants such as foreclosure filings, underwater mortgages and distressed sales are indicators of general housing market conditions and may end up becoming important barometers in times of economic stress, such as these.

What does the future hold?

Housing markets with significant shares of jobs in industries that are vulnerable to the current economic slowdown, such as oil and gas, tourism, and transport, are also more likely to struggle during a COVID-19 recession.

In addition to the housing market grinding to a halt because potential homeowners cannot view houses that are for sale during this pandemic, extreme job market uncertainty and unemployment are expected. According to one recent Fed estimate, unemployment rates may hit 32%, with the job losses at nearly 47 million. The plummeting US housing market will soon be forced to hit rock bottom, dragging the overall US economy down significantly.

By: Ritvik Sai Narayan

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