With much public disagreement and little time to spare, Congress has finally reached a deal for a new economic stimulus package.

The major developments provided by the new stimulus deal include individual payments, extra unemployment benefits and an extension of the eviction moratorium.

The stimulus provides one-time $600 payments to individuals who earn up to $75,000 annually, or up to $150,000 a year for couples who file jointly. Likewise, qualifying households with dependent children receive an additional $600 per child. This second stimulus payment is half the $1,200 amount taxpayers received under the first stimulus package.

The stimulus bill also adds an additional $300 weekly unemployment benefit, on top of any state unemployment benefits. For reference, the first stimulus bill provided an additional $600 a week, which expired at the end of July. The $300 benefit will expire in March 2021.

Gig workers who earned at least $5,000 in self-employment income last year receiving the $300 unemployment benefit may also qualify for an additional $100 weekly payment.

The Centers for Disease Control’s (CDC’s) rental eviction moratorium is extended another month, through January 31, 2021. It was previously set to expire at the end of 2020. Eligible renters need to earn less than $99,000 (or $198,000 for joint filers) in 2020 and to have experienced:

  • a substantial loss of household income;
  • extraordinary out-of-pocket medical expenses; or
  • a layoff.

The new stimulus program does not impact the foreclosure moratorium, which continues depending on the type of mortgage affected. For example, mortgages backed by Fannie Mae and Freddie Mac remain under the foreclosure moratorium through January 31, 2021. The foreclosure moratorium for Federal Housing Administration (FHA)-insured mortgages remains in effect through the end of 2020, though this will likely be extended.

The limitations of stimulus

The effects of the new stimulus will largely echo the first stimulus, consisting of a brief and minor injection of cash into circulation, as most consumers will spend their $600 payments (just 12% of individuals put most of the first stimulus payment into savings, with the majority spending it on household essentials, utilities and housing payments). Further, the timing of the new stimulus may mean that much of the individual payments goes toward paying off debt accrued during the holiday shopping season. The same goes for the reduced additions to unemployment benefits, which are also temporary. This windfall will add support to the economy for a matter of months in 2021.

What the new stimulus won’t do is support job creation, much needed here in California where 1.5 million jobs are still missing from the pre-pandemic peak.

The eviction and foreclosure moratoriums are essential during the pandemic surge, as keeping individuals housed prevents the mixing of households and the virus’ spread. But the impact on the housing market is less positive.

As of Q3 2020, 5% of all residential mortgages and 11% of Federal Housing Administration (FHA)-insured mortgages are 90 or more days delinquent, according to the Mortgage Bankers Association (MBA). When the foreclosure moratorium lifts, these homes will be quickly on their way to foreclosure. The wave of coming foreclosures will inflate the multiple listing service (MLS) inventory with distressed sales, dragging down home values and discouraging homebuyers.

For rentals, tenants unable to repay months of missed rent will lose their housing and vacancies will rise rapidly. The result will be rent cuts and decreased values for multi-family rentals. Worse, renters lack the anti-deficiency protections given to defaulting homeowners, as missed rents may be collected by money judgments in court. Some protections exist at the local level, but no legislation exists to protect tenants from landlords seeking to collect months of missed rent payments, as under our present eviction moratorium situation.

The foreclosure and eviction wave is coming with or without the current moratorium, it’s only a question of when. The best medicine for today’s recessionary environment is job creation, which of course is not addressed in today’s new stimulus bill. Only a return of the millions of jobs lost in 2020 will provide the foundation for a sustainable economic recovery.

Expect the recession to drag on in 2021, bottoming around Q1 2022. The recovery is expected to take hold in 2023 with the return of jobs.