Financial pressures in US housing markets could become more significant if government support wanes before a sustained recovery, a senior US Federal Reserve official warned Tuesday.
“The impact of the pandemic on real estate has been uneven as the boom in single-family homes has been accompanied by higher vacancy rates in most segments of commercial real estate,” said Esther George, president of the Federal Reserve Bank of Kansas City, in a comment at the University of Missouri Real Estate Symposium -Kansas City.
“While the stresses on real estate financing appear limited at the moment, that relative health has been greatly aided by the extraordinary policy response to the pandemic,” said George.
“If support wears off before a sustained recovery, the pressures could intensify, especially in the context of disruptive structural change,” noted the Fed official, adding that “a worrying scenario” is that the economic impact of the pandemic is political support programs currently exist.
“In this case, many tenants and businesses could fail to meet their obligations, forcing banks to take losses on existing loans and put a strain on loan growth and general economic activity,” she said.
George also warned that the impact of real estate on financial stability is “hard to underestimate” as the pandemic will cause some major structural changes in real estate markets.
“More recently, many accounts are tracing the roots of the 2008 financial crisis to excess residential finance. In addition, the lessons learned from disruptions in commercial real estate finance following the financial crisis are just as important today, ”she said.