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The Yankee Express

There won’t be a wave of foreclosures in the housing market

Mark Marzeott

My team often gets asked about…when are the foreclosures coming as a result of the pandemic? We always respond, “we hope never”.  But here is the response from some of our lender friends. 
There won’t be a wave of foreclosures in the housing market. When mortgage forbearance plans were first announced and the pandemic surged through the country in early 2020, many homeowners were allowed to pause their mortgage payments. Some analysts were concerned that once the forbearance program ended, the housing market would experience a wave of foreclosures like what happened after the housing bubble 15 years ago.

Here’s a look at why that won’t happen.
1. There are fewer homeowners in trouble this time. After the last housing crash, over nine million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank. Many believed millions of homeowners would face the same thing again this time. However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The latest data from the Mortgage Bankers Association (MBA) studies how people exited the forbearance program from June 2020 to November 2021.

Here are those findings:

• 39% left the program paid in full
• 20% made their monthly payments during the forbearance period
• 12% made up all past-due payments
• 7% paid off the loan in full
• 44% negotiated work-out repayment plans
• 29% received a loan deferral
• 14% received a loan modification
• 0.8% arranged a different repayment plan

• 0.6% sold as a short sale or did a deed-in-lieu
• 17% left the program still in trouble and without a loss mitigation plan in place

2. Those left in the program can still negotiate a repayment plan. As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a suitable plan with the servicing company that represents their lender. And the servicing companies are under pressure to do just that by both federal and state agencies.
3. Most homeowners have more than enough equity to sell their homes. For those who can’t negotiate a solution and the 16.8% who left the forbearance program without a work-out, many will have enough equity to sell their homes and leave the closing with cash instead of facing foreclosures. Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home. 
4. There have been far fewer foreclosures over the last two years. One of the less reported benefits of the forbearance program was that it allowed households with financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. That prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available. Otherwise, the real estate market would have had to absorb those foreclosures. 
5. The current market can easily absorb over a million new listings. When foreclosures hit the market in 2008, they added to the oversupply of houses that were already for sale. That resulted in over a nine-month supply of listings, and anything over a six-month supply can cause prices to depreciate. It’s exactly the opposite today. Total housing inventory at the end of November amounted to about 1.11 million units, down almost 10% from October and down over 13% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.
A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand. If you have real estate needs, contact a member of the Marzeotti Group or a trusted real estate professional.