Why a New Wave of Foreclosures Is Highly Unlikely

Many are concerned the housing market will experience a wave of foreclosures similar to what happened after the housing bubble 15 years ago with forbearance plans coming to an end. Here few reasons why you shouldn’t worry about that happening again.


Most mortgages in forbearance have enough equity to sell their homes


Due to rapidly rising home prices over the last two years, of the 1.22 million homeowners currently in forbearance, 93% have at least 10% equity in their homes. This 10% equity enables homeowners to sell their homes and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.


The remaining 7% might not be able to sell, but if the entire 7% of those 1.22 million homes went into foreclosure, that would total about 85,400 mortgages. To give that number context, here are the annual foreclosure numbers for the three years leading up to the pandemic:


  • 2017: 314,220
  • 2018: 279,040
  • 2019: 277,520


The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures that impacted the housing crash 15 years ago. It’s actually less than one-third of any of the three years prior to the pandemic.


There are fewer homeowners at risk


After the last housing crash, about 9.3 million households lost their homes to a foreclosure, short sale, or because they simply gave it back to the bank.


Many projected up to 30% of all mortgage holders would enter the forbearance program. The fear was the pandemic would impact the housing industry in a similar way. In reality, only 8.5% actually did, and that number is now down to 2.2%.


As of last Friday, the total number of mortgages still in forbearance stood at  1,221,000. That’s far fewer than the 9.3 million households that lost their homes just over a decade ago.


The current market can absorb listings coming to the market


When foreclosures hit the market back in 2008, there was an oversupply of houses for sale. Today, that number is less than a three-month supply. Here’s a graph showing the difference between the two markets. In reality, the likelihood of us having a foreclosure crisis again is about zero percent.




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