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How COVID-19 spurred rent struggles could lead to the next American housing crisis

U.S. new home sales fell 3.5% in September to 959,000. Lending Tree Chief Economist Tendayi Kapifidze joins Yahoo Finance's On The Move panel to discuss.

Video Transcript

JULIE HYMAN: To Tendayi's wheelhouse, and that of course is the housing market. A couple of different things to talk about here. Let's start with the idea that we are likely not going to see the same type of housing crisis that we saw the last time around when we had an economic downturn. But we could see one that is spurred by a rent crisis. This is according to a "Wall Street Journal" story today that sort of examined this phenomenon that when we get the national eviction ban, which starts to wear off-- and it also is happening in some states and cities-- that you then could have this wave of evictions, and people may be getting kicked out. And what kind of a ripple effect is that going to have? Tendayi, what's your analysis? How bad is this going to be?

TENDAYI KAPIFIDZE: Yes, it has the potential to be pretty bad if we don't get some actions to try and mitigate it, right? So, you know, the estimates vary, right? Somewhere between 20 and 40 million people are under rental stress right now because they've lost their income. They've got some replacement income from the government earlier in the year, but now without a second stimulus program they, you know, don't have quite enough income to meet their rental payments.

Now, there's been national moratoriums. There's been a lot of local moratoriums on rental evictions, but the kind of delinquency process on rentals can still continue. So the fear is once a lot of these moratoriums kind of end in January that you could face, you know, millions of people at risk of eviction.

So I'll say at risk of conviction and not necessarily getting evicted because eviction in many places is a legal process. I don't know that the courts have the capacity to evict, you know, 10, 15, 20 million people. But certainly it creates a lot of stress for those people and for those families not knowing-- you know, not being secure in their housing.

ADAM SHAPIRO: Tendayi, I'm curious, and I'm looking at the "Wall Street Journal" article on my other computer screen in which they cite the Philadelphia Federal Reserve bank that the outstanding rent debt is anywhere from $7.2 billion now to potentially $70 billion without further stimulus. I can't believe I'm about to say $70 billion doesn't sound like a lot of money for the federal government, which can borrow as much as it cares to. But is the solution to just throw $70 billion at landlords because that would also help, you know, upstream and downstream as opposed to evicting people?

TENDAYI KAPIFIDZE: Um, yeah. I think certainly you have to have some kind of cash infusion. I'm not sure where in the chain you would you put it in. Maybe it is to landlords because, you know, the further-- the way that chain goes is that the landlord has a mortgage. They have to pay that mortgage. If they miss on that mortgage, then, you know, you get into a mortgage crisis driven by rental homes.

If landlords suddenly have to, let's say, liquidate a lot of rental property, you can actually start to, you know, put a damper on house prices, which we just saw this morning pretty strongly in the Case-Shiller. So it can actually transfer from the rental market into the owner-owned-occupied housing market via this mortgage transmission from landlords.

JULIE HYMAN: Tendayi, I want to pick up on what you were saying about home price gains because you're referring to that Case-Shiller Home Price Index that came out this morning. It showed the biggest home price gains in August in more than two years. In the 10-city composite it was up 4.7% year over year. In the 20-city it was up 5.2%. Paired with what we're talking about with the rental market, does this support the idea that not only do you have a K-shaped recovery in the broader economy, but you have it in the housing market too and it's pretty acute?

TENDAYI KAPIFIDZE: No, it does not. Oh, sorry, you said K-shaped. Oh yeah-- I would--

JULIE HYMAN: K.

TENDAYI KAPIFIDZE: --agree with K-shaped. Yeah. You know, I think there's a bifurcation of the economy in many facets. The housing market though is a little bit unusual. We do have a strong and strengthening housing market. There is this weird seasonally effect thing that's going on though.

So essentially what happens is that based on with where sales and activity typically occurs during the year, certain data in the year is kind of bumped up, and other data is kind of bumped down so that you can compare it like apples to apples throughout the year. Now a lot of activity that would have happened in the spring is happening now. Typically in the spring that data is bumped down. Typically now that data is bumped up.

So if you look at some of the metrics, some of the month-to-month gains that we've been seeing are entirely due to seasonal factors. Now having said that, we are seeing year-over-year gains as well. So the housing market is strong, but it's not quite as strong as some of the headline data would suggest because of this distortion from seasonal factors.