Pollack: A thorny issue

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Company

While the outlook for the economy is very positive, particularly for Arizona, there is still one thorny issue to deal with. When the pandemic hit, millions of families with a sudden loss of income found they could not make rent or mortgage payments. Mortgage forbearance programs allowed them to postpone payments without penalty. Eviction moratoriums for renters were also put in place for an extended time period and many landlords and renters worked out modified payment plans. However, reality could be roaring back in the next few months.

In mid-January, 2.7 million homeowners were still on forbearance plans. But as required by the CARES Act, at the end of March, more than 600,000 homeowners will need to start making their monthly payments. And the remainder of those on forbearance plans will be required in later months to make payments as well unless there is an extension to the CARES Act.

Some homeowners, whose loans are backed by the government, won’t be required to make a lump sum payment to reimburse lenders for missed payments. For others, lenders could extend the terms of the forbearance, negotiate lower interest rates, or extend the term of the mortgage. But for those who can’t pay their mortgage or don’t have a job, they could face foreclosure. About 1.7 million more homeowners were seriously delinquent at the end of 2020 compared to 2019. The upside is that housing prices have risen by 9.4% across the country over the past year, so there is a chance some homeowners may come away with some cash in their pockets.

For renters, the ban on evictions was extended through the end of March by President Biden. Some states have extended the ban even longer. Nearly 20% of renters nationwide were behind on rent in December according to the U.S. Census Bureau. While the eviction bans are helpful in the near term, renters are still liable for their rent payments. Nothing in the federal legislation forgives a renter’s debts, it just protects the renter from eviction. Further, landlords and property owners have had to deal with their lenders if they fall behind on mortgage payments. To be successful, eviction moratoriums should be combined with rental assistance money or renters will never be able to repay all that is owed. Congress authorized $25 billion in rental assistance in December and another $25 billion is proposed as part of the new administration’s stimulus package.

Once the pandemic is behind us and jobs are recovered, there will still be potential problems facing renters unless relief is provided by federal and state legislatures. Tenants may be able to obtain some relief from their landlords through reduced monthly rent or long-term repayment plans. But for those who live paycheck to paycheck, the ability to repay several months of missed rent payment will be daunting without federal rent assistance.

So while the outlook for the economy is bright, there are still additional hurdles to overcome as we work out way out of the pandemic.

U.S. Snapshot:

  • The Blue Chip Economic Forecast panel increased their real GDP forecast for 2021 and 2022 on their February forecast. The panel expects the economy to grow at 4.9% in 2021 and 3.8% in 2022. The expected growth in 2021 and 2022 are well above the average growth the economy has experienced in the last decade. The panel points to the ramp up in vaccination and the expected additional stimulus as the reasons why their optimism on the economic growth has increased.
  • Overall inflation, as measured by the consumer price index, increased by 0.3% in January and 1.4% from a year ago. January’s growth is above the 0.2% seen in December. Core inflation (all items less food and energy) remained unchanged for the second consecutive month.
  • The Michigan Consumer Sentiment declined in February’s preliminary reading. The loss was concentrated among households with incomes below $75,000. The expected new round of fiscal stimulus would alleviate some of the concern among those households.
  • The number of job openings increased by 74,000 to 6.65 million in December. The number of hiring and separation both decline for the month. The drop in separations points to the decline in employment in December was primarily due to companies cutting hiring and not layoffs increasing.
  • The fiscal deficit jumped again in January as roughly $900 billion bill enacted by Congress began to take effect. The deficit reached $736 billion through the first four months of the fiscal year.

Arizona Snapshot:

  • Retail sales continued their recovery in December. Arizona reached $8.6 million in December up 7.7% from a year ago. Maricopa County saw gains of 9.2% to $6.2 million. This bodes well for the state and its counties.
  • Resales inventory continued to shrink in January according to the Tucson Association of Realtors. Total listings dropped to 881 down 61% from a year ago. Despite the low level of listing, the number of sales rose 9.1% from a year.
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