Real estate owners, especially mom and pop owners with only a few rental apartments, are exposed to an above-average risk of default in almost half of all districts in the country.
Property owners in 48 percent of the United States have a greater than average risk of their single-family homes falling into default, according to the latest rental property risk report, compiled by real estate analyst RealtyTrac.
RealtyTrac analyzed data in 3,143 counties, looking at factors like loan-to-value ratios, unemployment, and the number of rental units in the county to determine which are worst for the large number of renters who may not be able to make their payments amid the pandemic. Using these criteria, a weighted average was created on a scale from 0 to 100, with 100 being the most at risk.
“The loss of jobs in a handful of hard-hit industries due to the COVID-19 recession has hit tenants disproportionately,” said Rick Sharga, executive vice president of RealtyTrac, in a prepared statement. “Federal, state and local administrations then issued eviction bans to protect tenants, but inadvertently endangered many landlords.”
While states like Florida, New York, and California have had the most default-prone counties, Mohave County, Arizona is the most vulnerable region in the country, where 78.6 percent of all single-family home owners are at risk of releasing their own mortgage payments.
The risk of default arises from the overwhelming impact of the pandemic on all segments of the real estate market – countries whose economies are heavily dependent on entertainment and tourism were particularly hard hit due to both unemployment and the lower number of people who have to rent at all. (Cities with high student populations like Boston have also seen significant drops in rental rates.)
There is an ongoing debate about whether landlords who may not have received their rent have been hit as hard as renters, many of whom have lower incomes and were often pushed out of the market before the pandemic. According to RealtyTrac’s report, mom and pop property managers with fewer than 10 rentals make up the vast majority (90 percent) of those who are at risk of defaulting payments and other financial problems when tenants struggle to pay rent .
Overall, however, various government evictions and foreclosures programs have prevented the kind of massive crisis many feared at the start of the pandemic for both renters and home owners – given the uncertainty of the pandemic and the accumulation of defaults with widespread unemployment, there is always danger that the situation is rapidly deteriorating.
“Despite the pandemic, default activity is at its lowest level in decades, and the government and the mortgage industry are working together to prevent unnecessary foreclosures and evictions,” Sharga said. “But a concerted effort must be made to stop landlords as well, or foreclosures on rental properties and unnecessary financial hardships will increase in numerous counties across the country.”
Email Veronika Bondarenko