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Dec. 10, 2020, 4:37 p.m. EST

The housing market could suffer if Congress doesn’t pass a new stimulus package soon, ratings agency says

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By Jacob Passy

The home-buying market has remained a bright spot for the U.S. economy throughout most of the coronavirus pandemic. But inaction on the part of Congress to support Americans struggling this winter could hamper the market, according to a new report from Fitch Ratings.

In recent months, home price growth has broken records. Mortgage rates have sunk to all-time lows on average and have spurred demand among home-buyers, while millennials are entering their peak home-buying years. At the same time, many homeowners are reluctant to put their properties up for sale  — some have worries about getting sick if people tour their homes, while others remain concerned about the state of economy and needing to find a new home during a recession. With so many homes off the market, coupled with years of under-building, the country is facing a severe supply shortage.

As high demand has met low inventory, prices have gone through the roof. Fitch Ratings estimates that home prices will have risen 5.6% over the course of 2020. The ratings agency is predicting a slower pace of home price appreciation next year — but inaction on the part of Congress would threaten home prices even further, Fitch says.

Fitch currently projects home prices to grow between 1% and 3% in 2021 and 2022, given the current imbalance of supply and demand. “Approval of a second stimulus and extensions to forbearance plans or moratoriums will provide relief for home owners trying to regain their financial footing,” Suzanne Mistretta, senior director at Fitch Ratings, wrote in the report.

Should Congress fail to approve another stimulus package, home prices could flatten. As Mistretta notes, borrowers who are unemployed will face more financial pressure when their current relief expires. To cope, some may be forced to sell their homes. If that happens in large enough numbers, the nation’s supply of homes for sale will grow considerably, correcting the imbalance seen in the market today with demand.

Plus, a more prolonged economic downturn across the country could make it difficult for homeowners to emerge from forbearance. “Additional government assistance will help borrowers struggling with their payments until economic activity recovers,” Mistretta wrote. “A significant number of borrowers facing permanent job or income loss is likely to lead to a rise in loan modifications or foreclosures once forbearance plans and moratoriums conclude.”

Of course, not all would-be home buyers would be able to take advantage of such an opportunity. As Fitch also notes a “tale of two first-time buyers” has come about. People who work in hard-hit industries like tourism and hospitality have lost wages, putting them further behind in being able to save up to buy a home. Meanwhile, Americans with secure jobs have been able to save up more during lockdown and can afford to plunge into the market.

Still, Fitch projects that the U.S. housing market will fare better than markets in other countries. The ratings agency expects home prices to drop in many countries, including Canada, the United Kingdom, Ireland and Japan among others.

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