Two issues dominated this year’s election: the economy and the coronavirus pandemic.
Voters who have been personally affected by the coronavirus by either job loss or death of a loved one and concerned about controlling the pandemic overwhelmingly choose Biden as the president according to exit polls. While the former vice president has been vowing on the campaign trail to take a more direct federal approach to defeating the coronavirus, he’s also been vocal about tackling affordable housing.
Here are some of the ways a Biden presidency may influence the housing market in the coming years.
Mortgage Forbearance & Rent Moratoriums
Mortgage forbearance and rent moratoriums have been important tools to help homeowners and renters facing economic uncertainty during the pandemic, but concerns still linger about how long these programs can last.
In some states like Florida, Nevada, and Texas, forbearance rates hover at 7% to 8% of all borrowers in the state, well above the national average of 5%. With economies disproportionately reliant on tourism, hospitality, and entertainment, Florida and Nevada have seen heightened claims of unemployment.
Black Knight economist, Andy Walden explained to CNBC, “What we’ve seen in the data is that areas of the country most economically impacted by COVID-19, though not necessarily those with the most cases per capita, have the highest share of homeowners in need of financial assistance.”
In an interview with HousingWire, Jarred Kessler, CEO of EasyKnock, talked about how he sees the bifurcated economy signified by a struggling unemployed workforce and a housing market still on fire with homebuyer demand playing out over the next year.
When asked if he thought a second coronavirus stimulus bill can be expected to help unemployed homeowners and renters, he responded, “President-elect Biden has indicated two things that he’s very passionate about as it relates to the housing market. One is that he’s declared that he’s going to want to pledge 100 billion to expand affordable housing. The second thing is section 8 which allows low-income Americans to access funds to pay their rent. On top of that, I don’t see a scenario where some derivative of relief for renters and foreclosures is [not] going to be extended.”
The question still remains as to whether or not “mom and pop” landlords (those who own less than four properties) will receive some sort of relief too.
Kessler goes on, “I think the biggest thing that people have to understand is that there are millions of people in this country that have bought themselves some time with a forbearance or eviction program. I think understanding what’s happening in the underbelly of the economy with that is something we’re going to have to pay close attention to because we can have a scenario where the housing market goes from short supply to people having fire sales, massive foreclosures, massive evictions.”
“At the end of the day, if you’re telling people they have a holiday on rent, the landlords are going to increase penalties. They’re just delaying the problem, not fixing the problem. The economy in my mind is not getting better, it’s getting worse.”
Real Estate Investing & Homebuying
Bad news for big-time real estate investors as the tax-deferment program known as Section 1031 (or the 1031 exchange) may well end under a Biden administration’s tax plan. For years, this program has been a popular way for real estate investors to avoid paying capital gains taxes when selling one property and buying another within a certain period of time.
The first blow to this program came under Trump’s Tax Cut and Jobs Act of 2017, which scaled back some tax benefits for homeowners and also eliminated the eligibility of personal property (like collectibles, vehicles, or jewelry) for the “like-kind” tax deferment.
Fortunately, real property remained eligible, but Joe Biden announced during his campaign that he would seek the end of the 1031 exchanges for investors with an annual income of more than $400,000. Small-time “mom and pop” landlords feeling anxious about rent moratoriums can breathe a sigh of relief here, but those holding larger portfolios may be out of luck.
While there is no crystal ball on whether mortgage rates will stay low, many with their eye on the economy, including Jarred Kessler think the Federal Reserve will continue to sustain low rates to bolster the economy.
Economists are praising the Fed for doing its part to keep economic devastation at bay. Danielle Hale, chief economist for Realtor.com says, “The economy is still healing and may be doing so at a slower pace. The Fed has done its part to reassure skittish investors that it is alert and will continue to support the economy as needed.”
“[Lower rates] is one of the best tools in their tool box to stimulate the economy,” explains Jarred. The latest projections from the Federal Reserve show that interest rates could stay at historic lows well into 2024! That’s not so great news if you’re keeping your down payment in a savings account, but this is great news for real estate investors and homebuyers on the market.
Widening the pathway to homeownership so more people can achieve the American dream has been a central plank of Biden’s $640 billion housing plan. A big campaign promise included $15,000 in tax credits for first-time homebuyers at the time of purchase instead of having to wait until filing their taxes in April.
An End to Housing Discrimination
At the Democratic debate in Charleston, SC, Biden remarked, “Right now if you live in a black neighborhood and you have the same exact house as the guy across the street in a white neighborhood has, your house is valued significantly less than the white, the same exact house. We’ve got to deal with the institutional racism.”
Biden has proposed strengthening Section 8 housing vouchers, creating a national standard for appraising homes, establishing a public credit agency to help raise the scores of minority homebuyers so they may qualify for loans with lower rates and fees, and incentivizing local and state governments to discard regulations that make building affordable housing more difficult.
Biden’s housing plan is a stark contrast from President Donald Trump’s approach. Over the summer, the president rescinded an AFFH rule intended to combat racial discrimination in housing by requiring jurisdictions that receive federal housing funds to assess and address “patterns of housing discrimination, segregation, and disinvestment.”
The president doesn’t have nearly as much power over the economy as some people may assume since it’s the Senate that sets the federal government budget and the Federal Reserve sets interest rates. Without Democratic control of the Senate, it’s unlikely that a Biden administration will have an easy route to pass a second high-dollar coronavirus stimulus package, stop a wave of foreclosures and evictions, or create and preserve enough affordable housing, especially in the nation’s most expensive markets.
Still, many professionals working in real estate, and especially commercial real estate, remain hopeful. Ira Weinstein, managing principal and Opportunity Zones practice leader at CohnReznick said to Commercial Property Executive, “[Next year] looks promising for the real estate industry. We can expect a measured level of stimulus that will focus on healthy building and short-term economic support that will buy some time among residential and commercial tenancy. Housing — and particularly affordable – has been a mainstay of the campaign and will be front-and-center domestic policy that will support a major asset class with ripple effect. Wall Street seems supportive and that will mean short-term capital flow, while the focus on sustainability will bode well for the long term.”