We kicked off 2024 with a post looking at the sensitivity of low-income borrowers to a slowdown in the economy. We saw continued solid correlations between labor market conditions and jobless claims, particularly for low-income borrowers. At present, these all remain near historically low levels. However, we also saw growing distress in some categories of borrowers with modified loans. It seems that policymakers are going to great lengths to keep homeowners out of foreclosure.
This effort falls directly out of the experience of the Global Financial Crisis, where six million households lost their homes while only one-quarter of these regained homeowner status afterwards. This led to a persistent period of slow growth in the decade following the crisis, a situation that policymakers have become determined to avoid.
Consequently, when the COVID-19 pandemic hit, policymakers were prepared with a policy of forbearance where households who were impacted by the disease were allowed to defer payments until their economic situation improved. The policy was extraordinarily effective.
Unemployment and House Prices in Two Crises