Foreclosures And Mortgage Forbearance

Mortgage forbearance has come to an end nationally. While some states were ahead of the deadline in ending the forbearance, mortgage forbearance is a thing of pandemic’s past. However, with the end of the forbearance, there is a lot of talk going around about a wave of foreclosures is next. Many people have brought up the mortgage crisis of 15 years ago. But this real estate market is not like the real estate market we saw over a decade ago. There are a few reasons to why foreclosures will not happen again anytime soon.

Residents Using Mortgage Forbearance

Becoming a homeowner is the dream for millions of Americans. However, after the 2008 mortgage crisis, becoming a homeowner was easier said than done. While it was not impossible to become one with interest rates cut then, there was a better vetting process implemented. During the real estate crash that sank the global economy, over 9 million households were forced due to foreclose, short sale, or hand over their property to the banks. With the pandemic in full force, many analysts thought this would be next to follow. However, only about 9% of homeowners went into forbearance. This is well below the 30% of homeowners that were expected to enter the program. Only 2.2% of homeowner’s were in forbearance at the time the program closed.

Home Equity and Foreclosures

Homeowners also benefit from the massive gains in equity from surging home prices. As everyone has heard, home prices have been rapidly increasing since around 2019. With rapid increases in equity, there is less to worry about for people who are in mortgage forbearance. As for the 1.2 million people in the forbearance program, over 90% of these owner’s have at least 10% equity in their homes.

Because these homeowners have 10% equity, they are able to sell their homes and avoid costly fees. With equity above 10%, homeowners are able to pay closing costs and other expenses related to the sale of real estate. If they were below this equity mark, they could potentially face a hit on their credit because of a foreclosure or short sale.

With about 7% of forbearance program homeowners not surpassing the 10% equity mark, they might be in for trouble. However, 7% of 1.2 million homeowners is around 86,000 mortgages. Based on those numbers, that is less than a third of the homes that went into foreclosure in 2019. 2019 featured 277,520 foreclosures, a steep decline from years prior (Keeping Current Matters).

Why Foreclosures May Help Inventory

With the current landscape of the real estate market, a small amount of foreclosures would only serve to help the record low inventory problems. The mortgage crisis had the polar opposite of housing shortages. In 2008 and the following years, housing inventory was well above the demand for housing. With 2008 featuring a 9-month supply of housing, real estate prices plunged due to the simple supply and demand economic factor. On average, 2021 has housing inventories of less than three months. In places like Middletown, Jefferson County, and Oldham County, the inventory is barely above one month.

Foreclosure Conclusion

Will we see foreclosures coming into 2022? Probably. However, it will be well below the entire foreclosure market of 2019. Foreclosures are an awful thing to go through as a homeowner, however, it would potentially help the real estate supply problem. With less than 100,000 people facing foreclosure scenarios, a wave of foreclosures like we saw in 2008 is not going to happen. If you need help selling your home, or are interested in buying a home in this market, reach out to our team.