Here’s a question: How can the housing market continue to boom and the need for a $1.9 trillion stimulus package exist in the same universe? Doesn’t soaring housing and homes flying off shelves indicate the economy is healthy and robust?
There are countless articles and theories all over the internet attempting to answer these questions, from doom-and-gloom predictions to housing euphoria. While having each of those points of views on one half of your television set might make for an interesting few minutes between prescription drug commercials, perhaps Occam’s Razor can cut through the bull.
Are the stimulus bills actually helping anything?
For the simplest explanation for why stimulus is necessary during a housing boom, look no further than last spring.
In March 2020, Congress passed the CARES Act. Of the many concerns The CARES Act addressed, mass foreclosures and a repeat of 2008 was perhaps the most important. Specifically, in addition to unemployment and help for renters, the CARES Act allowed homeowners to request forbearance from their mortgage servicer.
Forbearance permits homeowners to stop making their mortgage payments temporarily. Interest that goes unpaid is added to the loan balance. When payments are resumed, a new payment is calculated using the new loan balance that includes the unpaid interest.
Over 4 million homeowners received forbearance in lieu of defaulting on their payments and entering foreclosure. Foreclosures destroy housing markets. The CARES Act prevented millions of them and thus allowed the housing market to persevere.
Without government intervention when the pandemic began, today’s housing market would look much different. 2020 ended with approximately 2.7 million homes still in forbearance.
Will another round of stimulus continue to prop up the housing market?
When most people hear the word stimulus, they think of one thing: “Where’s my check?”
Stimulus checks are tangible, which is why they receive so much attention. Also, I literally don’t have to do anything, and money just shows up in my account. Whether the amount is $600, $1400, or $2,000, a stimulus check is real money that I can use to buy groceries or help with my mortgage payment. There is no doubt that stimulus money is welcomed by many American families.
Let’s be real, though. If the additional stimulus on the table indeed ends up being $1,400 per adult, from a mortgage standpoint, $2,800 per married couple might cover one or two mortgage payments. Then what?
Extending Eviction and Foreclosure Moratoriums
Stimulus checks are important. They provide a boost for families that genuinely need them.
However, from a macro perspective, both domestically and globally, housing is more important.
Keeping people in their homes and curbing foreclosures is rightfully a priority for the Biden administration. 2008 was 13 short years ago (12 short years and one VERY long year, actually). The housing market is the pebble keeping the boulder from crashing through the town at the bottom of the mountain. If it goes, it all goes. Avoiding even a partial repeat of 2008 is paramount.
President Biden’s proposal to extend the foreclosure moratorium and extend applications for forbearance until September 30, 2021, is tangibly worth more to millions of families than a stimulus check. It is worth exponentially more to the economy in general.
As you continue to hear about stimulus negotiations over the coming days/weeks, stimulus checks will no doubt dominate the conversation. However, please pay attention to how housing is being addressed, including rent and eviction moratoriums. When people begin losing their homes, whether as renters or homeowners, nothing good follows.