In the wake of the COVID-19 pandemic sweeping across the globe, nearly every state government ordered the closure of non-essential businesses and mandated social distancing measures beginning in March 2020. As a result of the stay at home orders and the increasing numbers of Americans infected, unemployment claims skyrocketed while sectors of the economy plummeted. To lessen the impact of an economic slowdown, U.S. lawmakers proposed a stimulus bill worth $2 trillion called the CARES Act, and on March 27, 2020, President Trump made it law. The CARES Act dedicates government funding to support both large and small businesses, various industries, and individuals. But how will this consumer stimulus package impact the real estate industry?
How Coronavirus Changed Home Buying
Daily life has seismically shifted throughout the United States and around the world. But even though most Americans are facing some form of shelter-in-place orders – many of which could last for several more months – residents are still scouting, purchasing, and moving into new homes. Though several states classified real estate agents as essential service providers and permit them to continue working, associated businesses necessary to the home buying process remain shuttered or experiencing significant delays.
The coronavirus crisis interrupted home buying plans for some, while others who weren’t expecting to change residences suddenly find themselves moving because of a lost job or to take care of family members elsewhere. Even under normal circumstances, the idea of purchasing a home – the largest purchase many will ever make – inspires anxiety. Buying a home amidst the pandemic is even more frightening, thanks to uncertainty about the coming months, one of the most volatile stock markets in history, and historic levels of unemployment. In what should have been the busy season, this spring’s housing market is on pause, to some degree, as potential buyers wait to see what the coming months will bring.
What Home Buying Looks Like During the COVID-19 Crisis
So, what does home buying look like now? Can you still purchase a new home if you want to? While the process looks very different under social distancing measures, it is still possible. Major differences include:
- Virtual tours instead of meeting your realtor for an open house or showing
- Contract clauses to help buyers manage risk related to coronavirus
- Closing costs and process changes
How the CARES Act Applies to the Real Estate Industry
Beyond the single-family residential sector of the real estate industry, COVID-19 has impacted the housing market’s big picture. What if you’re not considering a purchase, you simply need to know how to maintain your mortgage payments? Or, if you’re a renter, what options can be found in the current economic situation?
The CARES Act has several implications that apply to the real estate industry, such as:
- Eviction and foreclosure freezes
- Forbearances on federally-backed mortgages
- Expanded unemployment benefits
- Small business financial support
- Affordable housing funding
Let’s take a look at these a bit more in-depth.
Eviction Freeze
Tenants of properties insured, guaranteed, supplemented, protected or otherwise assisted by one of the following federal programs will not receive any eviction filings, fees, or penalties for nonpayment of rent for 120 days:
- HUD
- Fannie Mae
- Freddie Mac
- Rural housing vouchers
Loan Payment Forbearance and Foreclosure Freeze
Any loans held by the above agencies, as well as the Veteran’s Administration or the USDA, are eligible for up to 360 days of forbearance on payments, without additional fees, interests, or penalties. Unless abandoned or vacant, properties with government-backed mortgages cannot be foreclosed for 60 days from March 18.
Multifamily Property Mortgage Forbearance
Owners of multifamily properties with any loans backed or assisted by any branch of the federal government can request forbearance of up to a total of 90 days due to financial hardship, as long as the mortgage payments were current as of February 1. Borrowers receiving this forbearance may not evict tenants or charge late fees during the forbearance period.
Expanded Unemployment Benefits
The CARES Act supplements existing unemployment benefit payments, extends those payments beyond the current time limits for each state, and expands eligibility for benefits to many not currently eligible under current standards. Specifically:
- Individuals who are unemployed, partially unemployed, or unable to work as a result of COVID-19 will receive an additional $600 per week for up to four months.
- The stimulus package provides 13 additional weeks of unemployment benefits, with a maximum of 39 weeks of assistance.
- Self-employed individuals, independent contractors, gig workers, or other individuals who cannot work as a direct result of the public health emergency are eligible to receive the newly created “Pandemic Unemployment Assistance” (PUA), as long as they are not receiving sick leave or other paid benefits.
Financial Support for Small Businesses
if you’re a real estate agent with 500 employees or less and your agency has been impacted negatively, you can apply for an SBA loan up to $10 million, an Economic Injury Disaster Loan Emergency Advance of up to $10,000, or the Payroll Protection Program to cover 2.5 months of payroll and operating costs, like rent or utilities. Portions of these loans will be forgiven, as long as pre-crisis staffing and wage levels are maintained.
Some of the loan recipients might be professionals necessary to the real estate industry, such as home inspectors, real estate brokerages, or a notary. Receipt of the funds might help some remain in business, which in turn, helps the real estate industry continue to function at least to some extent.
Funding for Affordable and Public Housing
The stimulus package includes funding for several federal affordable and public housing programs to assist families experiencing income loss due to COVID-19. Allocations include:
- $1.25 billion in Section 8 vouchers for seniors, disabled, and low-income families
- $5 billion in CDBG community and state assistance to address COVID-19
- $1 billion in project-based rental assistance and $15 million for Section 811 disability housing to make up for a reduction in payments from tenants due to the virus
- $50 million in Section 202 elderly housing assistance to maintain housing and services for low-income seniors
Final Thoughts
The CARES Act hopes to lessen the impact of the COVID-19 public health emergency on the U.S. economy, including the real estate industry. Through the provisions detailed above, the consumer stimulus package might benefit some segments of the real estate market more than others. But in an environment consumed by uncertainty, every bit helps.