Foreclosure Crisis Looms as Federal Benefits Run Out
The V-shaped COVID-19 recovery many experts expected has regressed several letters in the alphabet, to K. In other words: High-income, affluent individuals will recover relatively quickly, whereas the lower-income population is at serious risk of plunging into poverty.
People who derive their primary income from service industry jobs have been hit especially hard by the pandemic. For several months, unemployment benefits and one-time payments provided some relief. But after those measures ended at the close of July, missed mortgage payments have mounted, and a foreclosure crisis could be near.
Bans have so far forestalled those foreclosures, but nonetheless, the past-due mortgage level is approaching the mark hit at the outset of the Great Recession. “The share of loans with payments 90 days to 119 days ate quadrupled between May and June,” reads an article in HousingWire. At 2.3%, it continues, it has reached “the highest level in more than 21 years.”
Despite what seems like an imminent rash of foreclosures, experts suggest that the underlying financial system itself is safe. Recent fiscal policy — the $200 billion mortgage-backed securities buyback, for example — has pumped liquidity into the market. The Great Recession was prompted by a liquidity crisis, which is not what COVID-19 has sparked. Likewise, the Fed has stated that its benchmark rate will stay low through 2023, to help encourage would-be homeowners to go for loans.
Indeed, the luxury home market has been growing — to the point that St. Louis Federal Reserve Economist Bill Emmons described it as experiencing “strength, or even froth.” For the three months ending July 31st, 2020, the median luxury home price in the U.S. had risen to $825,000 — a 1.2% year over year increase from the same period in 2019.
Although major U.S. cities are slowly approving indoor dining policies, trouble still looms for lower-income Americans. Assuming no additional federal support, December 2021 could display a mortgage delinquency rate four times the pre-Coronavirus mark.
