Opinion | The Relief Bill’s Biggest Blind Spot

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Because the housing market is so tied up with the world of finance, we could see strain reach from Main Street to Wall Street. If banks start getting squeezed by rising default rates and missed rent spills over into missed mortgage payments by landlords, the Fed and other regulators that keep an eye on the safety and soundness of banks might need to step in.

The Fed is already sounding alarms about this potential crisis. The Fed’s latest Beige Book, which reports economic conditions from the 12 Reserve bank districts before each policy meeting, called special attention to the risk. In total, seven out of the 12 banks — New York, Philadelphia, Cleveland, Atlanta, Chicago, Minneapolis, San Francisco — included the looming end of mortgage forbearance and eviction moratoriums in their entries.

As the Federal Reserve bank of Minneapolis explained, “While federal and state eviction moratoriums were keeping people housed, rent collections at lower-priced units in Minnesota were reportedly falling faster than at higher-priced units. Rising nonpayments were also squeezing smaller landlords, who have fewer options for mortgage forbearance than larger landlords.”

National leaders are at risk of being lulled into complacency by the brighter set of numbers on the upper end of the residential real estate market, which is seeing robust growth and driving countrywide increases in median sale prices.

By failing to tackle the emerging housing crisis more aggressively, Washington is risking financial distress among renters, homeowners, small business owners in real estate, as well as investors in mortgage markets and banks (big and small.)

It’s a gamble that could pay off, but it’s irresponsible for Congress to bet a house on it.

Claudia Sahm, an economist at the Federal Reserve from 2008 to 2019, is the architect of the Sahm Rule, a recession indicator.

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