The US financial system maintained its strength during the first ten months of the pandemic, thanks to the unprecedented federal response and the uniqueness of the Coronavirus Depression. Although the affected economy is still far from a full recovery, most of the early concerns about frozen bond markets and a drop in equities have faded.
In a report published by the American newspaper “The Hill”, Sylvan Lynn outlined some of the emerging risks for 2021 that involve the uncertain future of the US economy and federal aid.
Massive rally in stocks
The stock market was among the first economic sectors to be affected by the pandemic, yet it was also one of the first sectors to be able to fully recover.
While the share prices of companies in the worst-affected sectors are still low, the rise in technology companies’ shares and the recovery of other industries – which have not been undermined by the pandemic – led to a record high in the main stock indices.
The writer ruled out that the country will witness a new severe crisis, such as the Corona crisis, unless a comprehensive economic or health collapse occurs, but some experts say that investors are preparing for economic fluctuations in January, and this is partly due to the Georgia run-off elections that will determine the party that dominates the Council Elders.
This was confirmed by Brian Overby, chief market analyst at Allie Invest, who said, “By the new year, the stock market indices cause uncertainty. We are rarely witnessing most major indices setting new records, while the volatility index stabilizes at rates ranging between 21 and 24%.”
Rising real estate prices
Extremely low interest rates and months of remote work have resulted in a significant increase in home sales and higher selling prices, and demand has caused the number of available homes to decline, increasing average supply prices by 13.3% compared to 2019.
Last November, construction work began on more than 1.5 million homes, and building permits rose to their highest level since September 2006.
And strict lending standards prevented banks from offering high-risk loans like the ones that fueled the property bubble before the 2007 financial crisis and caused an economic recession. But the instability of the economy and the huge gap between homeowners and renters could cause prices to rise further in 2021.
The federal government enacted many laws to protect citizens from foreclosure and eviction, but the period of validity of these laws ends at the end of this January, and experts estimate that tens of millions of families may face eviction or foreclosure decisions at that time, and the inability to pay the rent due in general 2020, which could cause the displacement of millions of tenants.
Not only would this be an economic catastrophe, but the huge losses that mortgage workers would suffer would affect the financial system as a whole.
According to a member of the Federal Reserve Board, Michael Bowman, “The defaults and defaults that we witnessed last spring could have caused the bankruptcy of some real estate companies, especially if the increase in the incorporation income and refinancing was not realized.”
Commercial real estate problems
After nearly a year of working remotely, many are eager to return to their offices, but industry experts say that many companies are making decisions to reduce office space, search for buildings in cheaper areas, or eliminate their headquarters altogether.
“Sectors that do not require face-to-face interaction, such as data centers, telecommunications companies, and logistics facilities, have quickly recovered from the initial shock of the pandemic, and have benefited from the economy created by social distancing, work and home shopping,” says Calvin Schnur, chief economist at Nareit. This has raised the demand for digital communication services and e-commerce, while most traditional real estate types witness high vacancy rates or low rents, or both.
Banks spent the first six months of 2020 consolidating their allocations in preparation for credit losses (money earmarked to cover loans that will not be repaid) and it seems that the Federal Reserve is confident in the banks’ ability to withstand all the risks that the year 2021 carries, as last Friday allowed the largest banks to oversee It should resume paying shareholders’ dividends after the assets were frozen earlier this year.
However, Fed member Lyle Brainard voted against the decision, arguing that “prudence calls for reducing payments to preserve the ability to lend to families and borrowers during a challenging winter.”