There has been talk in the media that the national forbearance program implemented at the start of the pandemic and soon to come to an end, will lead to a wave of foreclosures and cause chaos in today’s sizzling hot real estate market. Forbearance allowed borrowers to pause their payments and in turn, enter into various plans for lower payments or complete deferral of payments until the end of the loan term.
Many people jump to the plight and homeowner struggles during the Great Recession as an argument that the housing market is about to repeat itself. In September 2009, delinquent loans had risen to 14.4%. Today, 3.4% of all mortgages are in forbearance, which amounts to 1.7 million homeowners. The vast majority of those that remain in forbearance will not become a foreclosure or short sale statistic. Why is it different this time?
Thanks to the screaming hot housing market and skyrocketing home appreciation, most of these homeowners have plenty of equity to sell their home. 87% have at least 10% equity, more than enough to sell and walk away with net proceeds. The 13% remaining amounts to 221,000 homeowners. Many of them will work out some sort of loan modification with their lenders. Lenders have learned many valuable lessons from the Great Recession, and are not at all eager to foreclose.
The number of homes that are in danger of foreclosure - due to inadequate equity - pales in comparison to the nearly nine million homes lost to foreclosures in the Great Recession. These homes will be easily swallowed up in today’s ferociously hot housing market.
Bottom line, the sky will not fall. Instead, everyone should expect more of the same. The ultra-low, anemic inventory will remain, and demand will be juiced due to historically low mortgage rates. Whether you’re buying or selling, I’m here to help.