Looking ahead to recovery

Federal initiatives to help along the economic recovery are in motion, but how much is the economy anticipated to improve in the latter half of 2021 and beyond?

The American Rescue Plan was recently passed, a $1.9 trillion investment which aims to create millions of jobs, vamp up economic recovery and financially assist struggling renters and homeowners.

Brookings estimates the plan will boost economic activity, measured in terms of gross domestic product (GDP) with a 4% increase at the end of 2021 and a 2% increase at the end of 2022, when compared to a projection assuming no additional fiscal support.

In fact, without any additional fiscal support, Brookings projects real GDP will remain below the pre-pandemic level for the next several years. Of course, GDP is just one measure of economic success, and the recession continues to impact different segments of the economy — including housing — in different ways.

The American Rescue Plan includes funding to:

provide direct relief to Americans in the form of $1,400 stimulus checks for individuals and their dependents making less than $75,000 and couples making less than $150,000;
increase Child and Dependent Care Tax Credits;
increase the Earned-Income Tax Credit for those without children;
extend unemployment benefits until September 6, 2021 with a weekly $300 supplemental benefit on top of the regular $400 benefit;
establish a national vaccine program which will set up community vaccination sites nationwide; and
safely reopen a majority of K-8 schools.

For housing, the plan provides:

$21.55 billion in emergency rental assistance for households that have qualified for unemployment benefits or experienced financial hardship due to COVID-19;
$5 billion in emergency housing vouchers for individuals or families at risk of homelessness;
$100 million in emergency assistance for rural housing;
$100 million in housing counseling targeting minority and low-income populations facing housing instability;
$5 billion in homelessness assistance and supportive services programs; and
$9.9 billion in homeowner assistance to prevent mortgage delinquencies, defaults and foreclosures.

Stimulus, recovery and recession 2020

Although the new stimulus package has provided some immediate relief to households, the number one factor which plays a critical role in how the economy and the real estate market function is the number of people employed.

As of March 2021, California employment is 9.3% or 1.7 million below the pre-recession December 2019 peak.

The most recent stimulus package, like its 2020 predecessors, focuses on band-aid solutions rather than job creation. Since then, the administration has introduced a jobs plan which seeks to create millions of jobs while also investing in infrastructure, but it has not passed yet.

Rather than investing directly in job creation, these stimulus packages provide a safety net for the waterfall of jobless households expected to face eviction and foreclosure in the latter half of this year. This is because on June 30, the eviction and foreclosure moratoriums are slated to expire. However, this expiration date has changed before and may be pushed back yet again.

Further, the ongoing recession was already building for months before COVID-19 hit. Thus, while vaccines are offering some economic relief, they cannot be responsible for curing the economy, since there were other, underlying issues behind the recession’s inception.

Ultimately, it’s the return of jobs that will dictate the recovery from the ongoing recession. Currently, California still needs a whopping 1.7 million jobs to return to pre-recession levels.

firsttuesday forecasts a recovery will materialize around 2024. However, the timing of this recovery will depend on any further extensions of the foreclosure and eviction moratoriums, further stimulus programs and government-sponsored programs to support job creation.

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