Zillow Market Pulse: September 2, 2020
The Fed owns almost a third of all outstanding agency mortgage bonds, and residential renters were granted a reprieve while their commercial peers suffer.

The Fed owns almost a third of all outstanding agency mortgage bonds, and residential renters were granted a reprieve while their commercial peers suffer.
The Federal Reserve has taken a series of bold, unprecedented actions since the Spring with the goal of keeping money moving through the economy — including cutting overnight interest rates to zero, providing direct support to private firms and fundamentally shifting policy mandates. It has also essentially removed any limits placed on its program of mortgage bond purchases, known as Quantitative Easing. The results of this seemingly limitless purchasing program are now coming to light. The Fed has purchased about $1 trillion in mortgage bonds and now owns about 30% of all outstanding agency mortgage bonds. Despite its seemingly bloated size, analysts said they believe the Fed’s purchasing program is sustainable. The program has brought stability to the mortgage market, keeping spreads between Treasurys and bond yields in check and the market for mortgages performing with some level of consistency. The Fed’s actions, and the market activity they have prompted, have also helped place downward pressure on mortgage rates, helping fuel a strong recovery in the housing market.
Emergency action taken by the Centers for Disease Control and Prevention (CDC) aimed at protecting renters from eviction was undoubtedly welcome news for millions who were unsure of their fate going forward. The new order is an extension of the since-expired eviction ban included as part of the CARES Act, and offers protection to all renters – not just those living in homes financed with government-backed mortgages – so long as they meet certain criteria pertaining to their household finances and other factors. Much like last week’s announcement by the FHFA, the new order extends the ban on evictions to the end of 2020. But while some are hailing the new directive, others are exercising more caution, citing concerns about its long-term impact. The measure does not offer any clarity into how quickly renters will have to pay back rent once protection expires, and it does not contain any explicit protections for landlords already suffering a notable downturn in revenue. According to property management screening firm Rentec Direct, landlords collected 29% less rent in the first ten days of August compared to in the first ten days of March.
Evidence of the difficulties surrounding evictions and the expiration of moratoriums can be found in the commercial real estate space. While bans on residential evictions have been extended, most state-level restrictions on evicting commercial tenants have recently expired. As a result, eviction proceedings are picking up, particularly in the retail space. A report from the Wall Street Journal outlines a series of cases in which landlords, both big and small, around the country are evicting their tenants who owe rent and with whom they haven’t been able to agree to a modified lease, with the apparel, fitness and theater sectors bearing much of the brunt. The uptick in evictions in the generally less-regulated commercial space likely illustrates the challenges that could be faced by residential renters and owners that are financed by mortgages that are not guaranteed by government agencies (30% of all outstanding mortgages). One-size-fits-all protection plans are difficult to craft and enforce.
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