The end of forbearance won’t lead to a wave of foreclosures. Here’s why.
With the end of the moratorium on foreclosures and evictions, many people are concerned that we’re headed for a wave of foreclosures in the coming months. However, I don’t think that we need to be concerned about this supposed wave, and there are four reasons why:
1. There are fewer homeowners in distress. After the last housing crash, about 9.3 million homeowners lost their homes to a foreclosure, short sale, or they simply gave them back to the bank. Today the total number of foreclosures still in forbearance stands at 1.863 million. Yes, that’s a large number, but it’s not close to the level of the last crash. Many experts project that 30% of all mortgage holders would enter the forbearance program, but only 8.5% actually did. That number is now down to 3.5%.
2. Most homeowners in forbearance have enough equity in their homes to sell. Of the 1.86 million homeowners currently in forbearance, 87% have at least 10% equity in their homes. That enables them to sell their homes and pay the related expenses instead of taking the hit on their credit that forbearance or a short sale would create. The remaining 13% might not have the option to sell, so if 13% of the 1.86 million homes went into foreclosure, that would total around 241,800 mortgages.
3. The market can absorb any listings that come on to the market. When foreclosures hit the market in 2008, there was an excess supply of homes for sale. The situation is exactly the opposite today. In 2008, there was a nine-month supply of listings for sale, but today, that number stands at less than three months of inventory (even lower in some markets). Any foreclosure increases will quickly be absorbed by the market, and it won’t lead to any price declines.
4. Those in power will do whatever it takes to avoid a wave of foreclosures. Just last Friday, the White House released a fact sheet explaining how homeowners with government-back mortgages will be given further options to enable them to keep their homes when exiting forbearance. Here’s an example mentioned in the release: “For homeowners who can resume their pre-pandemic monthly mortgage payments and where agencies have the authority, agencies will continue requiring mortgage services to offer options that allow borrowers to move missed payments to the end of the mortgage at no additional cost.”
The bottom line is that when evaluating the four reasons above, it’s clear there won’t be a lot of foreclosures coming to the market as the forbearance program winds down.
If you have any questions about this topic or anything else to do with real estate, don’t hesitate to give me a call. We appreciate you for your friendship, your referrals, and for trusting us with your real estate needs.
