The near-future will be bringing a wave of foreclosures, according to a Federal Reserve economist, but this will not be at the severe levels experienced in the aftermath of the 2008 economic meltdown.
In a presentation titled “Housing Insecurity in the Time of COVID-19,” William R. Emmons, lead economist with the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, theorized that current fiscal policy will protect the economy and housing markets from experiencing the chaos that wreaked havoc during the last financial crisis.
“It’s a slow-moving process,” Emmons said. “It definitely looks like there will be another major event, but hopefully not as bad as the foreclosure crisis associated with the Great Recession.”
Still, Emmons added, the situation is serious, with past-due mortgages rising to a level seen at the start of the Great Recession, although the full nature of tumult is hard to determine due to moratoria placed on foreclosures and evictions during the pandemic. This percolating crisis will disproportionately impact lower-income households, Emmons added, disrupting hopes that a V-shaped recovery would positively impact all segments of the population.
Probably the clearest massive supportive income were one-time payments and unemployment benefits, but those provisions expired at the end of July,” said Emmons. “The V has been interrupted.”
Separately, St. Louis Fed President James Bullard presented his view on the current socioeconomic scene in a webinar titled “COVID-19 and the U.S. Economy: Progress on Health and Incomes.” Bullard observed what he viewed as significant progress in managing the global health crisis and predicted U.S. economic activity will likely record considerable growth in the third quarter.
“I expect this rebound to continue in the U.S. as businesses learn how to produce products and services safely using simple, existing technology,” Bullard said.
Bullard also credited U.S. monetary and fiscal policies as being effective during the pandemic, noting that “backstop lending programs stemmed an incipient financial crisis during the March-April time frame, to the point where current levels of financial stress are near pre-pandemic levels.”
Nonetheless, Bullard stressed the pandemic is still with us and he suggested the second half of the year should be viewed as a time for adapting to a new mortality risk in the economy.
“Simple mortality risk mitigation strategies hold the promise of delivering higher household incomes along with lower fatalities from COVID-19, thus improving outcomes along both dimensions,” he said. “The downside risk remains substantial and continued execution of a granular, risk-based health policy will be critical in the months ahead.