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Thursday, May 26th, 2022
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MADISON — Housing prices have surged during the pandemic, and an unprecedented infusion in federal cash to stave off evictions and foreclosures is a big reason why, according to a new study by the Wisconsin Institute for Law & Liberty.

The federal eviction moratorium added $3,000 more to the cost of a home, and the mortgage forbearance program pushed up housing prices by as much as $11,000, according to the analysis, Priced Out: The Unintended Consequences of Federal Moratoriums on Wisconsin’s Housing Market.

The two relief programs likely added 20 percent to the soaring costs of Badger State homes.

“Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and several subsequent actions, the federal government effectively banned eviction and foreclosure on millions of homes throughout the country for more than a year,” according to the study, authored by WILL Research Director Will Flanders. “Because this creates a chokehold on the supply of homes, classical economics would tell us that this should have a direct effect on home prices, as supply is unable to keep up with demand.”

The study used Wisconsin housing market data over the past three years.

Key findings include:

› Housing prices have increased significantly in Wisconsin. The average price of a home soared by more than 37 percent since January 2019, from about $175,000 to $240,000 in December of 2021.

› The eviction moratorium likely increased housing prices. The implementation of this program is associated with an increase of $3,664 in the average cost of a home in Wisconsin. This represents about 5.4 percent of the overall increase in the price of a home.

› The forbearance option likely increased housing prices. The implementation of these programs is associated with an increase of $11,354 in the average cost of a home in Wisconsin. This represents about 17.4 percent of the overall increase in the price of a home.

› Housing price increases aren’t limited to cities. Some of the largest percentage increases in the average cost of a home occurred in rural counties.

As the Federal Reserve Bank of Dallas reported, the acceleration in house prices immediately following the COVID-19 recession was much different from the steep decline triggered by the subprime bust in the February 2007 to June 2009 Great Recession. Unlike the lead-up to the Great Recession, homeowners were not overleveraged, and lending standards were not too loose.

“During the pandemic, large transfer payments that included stimulus checks and extended/expanded unemployment benefits boosted household incomes. As a result, household incomes and housing demand did not collapse when unemployment spiked to a seasonally adjusted 14.8 percent in April 2020 (from 4.4 percent a month earlier),” the Dallas Fed stated.

While the emergency actions were billed as necessary, they may have been made and celebrated without weighing all of their costs, especially the “unintended” ones, WILL’s study asserts. The rising cost of home ownership, after all, is one of the largest economic challenges Americans face.

Such relief, it should be noted, was passed and signed without full consideration of constitutional questions. The U.S. Supreme Court last year held that the CDC lacked the authority to issue the moratorium because the action required “clear and specific congressional authorization.”

The unintended consequences of the federal programs came with housing prices nationally climbing more than 30 percent over the past decade, while personal income grew by about 11 percent, according to a Bankrate.com study.

“With the arrival of the COVID-19 pandemic, the federal government took extraordinary steps to mitigate the effects. Our goal was to measure the cost of these interventions so the public and policymakers can better understand the unintended consequences of well-intentioned polices,” WILL’s Flanders said.

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