With forbearance plans coming to an end, many are concerned the housing market will experience a surge of foreclosures like what happened after the housing bubble in 2008. Here are a few reasons why that won’t happen…
The current market can take any listings new to the market
When foreclosures hit the market in 2008, there was an excess supply of homes for sale. In 2008, there was a 9-month supply of listings for sale. Today, that number stands at less than 3 months of inventory on the market. The situation is exactly the opposite today from what it was 15 years ago.
As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains when addressing potential foreclosures emerging from the forbearance program:
Any foreclosure increases will likely be quickly absorbed by the market. It will not lead to any price declines.
There are fewer homeowners in forbearance
After the last housing crash, about 9.3 million households lost their home to a foreclosure, short sale, or because they simply gave it back to the bank.
As stay-at-home orders were issued early last year, the overwhelming fear was the pandemic would decimate the housing industry in a similar way. Many experts projected 30% of all mortgage holders would enter the forbearance program. Only 8.5% actually did, and that number is now down to 3.5%.
As of last Friday, the total number of mortgages still in forbearance stood at 1,863,000. That’s definitely a large number, but nowhere near 9.3 million.
Most homeowners in forbearance have enough equity to sell their home
Of the 1.86 million homeowners currently in forbearance, 87% have at least 10% equity in their homes. This equity number enables homeowners to sell their houses and pay the related expenses instead of dealing with a foreclosure or short sale.
The remaining 13% might not have the option to sell, so if the entire 13% of the 1.86M homes went into foreclosure, that would total 241,800 mortgages. To give that number context, here are the annual foreclosure numbers of the three years leading up to the pandemic:
- 2017: 314,220
- 2018: 279,040
- 2019: 277,520
A wave of foreclosures will be avoided
Just last Friday, the White House released a fact sheet explaining how homeowners with government-backed mortgages will be given further options to enable them to keep their homes when exiting forbearance. The release included the following:
- For homeowners who can resume their pre-pandemic monthly mortgage payment and where agencies have the authority, agencies will continue requiring mortgage servicers to offer options thatallow borrowers to move missed payments to the end of the mortgage at no additional cost to the borrower.
- The new steps the Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) are announcing will aim to provide homeowners with a roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term. This brings options for homeowners with mortgages backed by HUD, USDA, and VA closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac.
At the end of it all, the truth is that the likelihood of us having a foreclosure crisis again is incredibly low. Connect with us today to learn more about what the future housing market has in store.