The U.S. financial system maintained its strength during the first ten months of the pandemic, thanks to the unprecedented federal response and the unique nature of the coronavirus recession. While the battered economy is far from fully recovered, most of the early concerns about frozen bond markets and falling stocks have faded.
In a report published by the US newspaper The Hill, Sylvan Lane outlined some of the emerging risks of 2021 involving the uncertain future of the US economy and federal aid.
The massive rise in stocks
The stock market was among the first economic sectors that were affected by the pandemic. But it was also one of the first sectors that managed to recover fully.
While the share prices of companies in the hardest-hit sectors remain low. The rise in technology stocks and the recovery of other industries – not undermined by the pandemic-has led to a record rise in major equity indices.
The writer ruled out that the country could experience a new acute crisis such as the corona crisis unless there is an overall economic or health collapse.
But some experts say investors are preparing for economic volatility this January, in part because of the run-off elections in the state of Georgia that will determine the party in control of the Senate.
Brian Overby, the chief market analyst at Ally Invest, said: “stock market indices are uncertain by the new year, with most major indices rarely hitting new highs. While volatility is stabilizing at 21-24%.”
Rising property prices
Extremely low-interest rates and months of telecommuting have led to a significant increase in home sales and rising selling prices. And demand has caused a decline in the number of available homes, increasing average supply prices by 13.3% compared to 2019.
Last November, construction began on more than 1.5 million homes. And building permits rose to the highest level since September 2006.
Tried the strict lending criteria without providing bank loans high risk. Such as those that fueled the real estate bubble before the 2007 financial crisis, and economic recession. But the instability of the economy and the huge gap between homeowners and renters could cause prices to rise further in 2021.
Eviction of tenants
Cents the federal government many laws to protect citizens from foreclosures and evictions. However, the validity of these laws expire at the end of January current, experts say that tens of millions of households may face the decision of evictions or foreclosures. Then, the inability to pay the rent due to 2020, which may cause the displacement of millions of tenants.
This would not only be an economic disaster. But the enormous losses that mortgage operators would incur would affect the financial system as a whole.
According to Federal Reserve Board member Michelle Bowman, ” the defaults and defaults we saw last spring could have caused some real estate companies to go bankrupt. Especially if the increase in the incorporation and refinancing income did not materialize.”
Commercial real estate problems
After nearly a year of telecommuting, many are eager to return to their offices, but industry experts say many companies are making decisions to shrink office space, look for buildings in cheaper areas, or get rid of their headquarters altogether.
“Sectors that do not require face-to-face interaction, such as data centers, telecommunications companies, and logistics facilities, have recovered quickly from the initial shock of the pandemic, and have benefited from the economy created by social distancing, work, and home shopping, raising demand for digital communications and e-commerce services, while most traditional real estate types are experiencing higher vacancy rates, lower rents, or both,” says Calvin Schnur, chief economist at Nareit
Banks have spent the first six months of 2020 strengthening their allocations in preparation for credit losses (funds earmarked to cover loans that will not be repaid) and the Federal Reserve seems confident in banks ‘ ability to withstand all the risks of 2021, as last Friday it allowed the largest banks it oversees to resume paying dividends to shareholders after freezing assets earlier this year.
However, Federal Reserve Board member Lyle Brainard voted against the decision, arguing that “wisdom calls for reduced payments to maintain the ability to lend to households and borrowers during a challenging winter.”