Why a Wave of Foreclosures Isn’t Coming

With pandemic-related mortgage forbearance plans ending, there is concern a wave of foreclosures is looming as homeowners have to start making loan payments again.

It isn’t.

“There’s fear it could look like 2008, when the housing bubble burst,” says Cathy Vick, a Sales Associate at ERA Justin Realty. “What’s happening today is nothing like 15 years ago.”

Here are a few reasons:

Fewer homeowners are in trouble. After the last housing crash, about 9.3 million households lost their homes to foreclosure, short sale, or simply because they gave it back to the bank. When stay-at-home orders were issued in early 2020, mortgage companies offered homeowners a chance to stop loan payments for up to 18 months. Companies expected 30% of mortgage holders to take them up on the offer. But only 8.5% did.

Most mortgages in forbearance have plenty of equity. Because of rapidly rising home prices over the past two years, 93% of the roughly 1 million homeowners still in forbearance have at least 10% equity in their homes. “This means homeowners in financial trouble could sell and make enough to pay the related expenses,” says Cathy. For those exiting forbearance who don’t want to sell, they can choose between resuming loan payments and tacking the extra debt on to the end of their mortgage, modifying their loans to reduce the monthly payments, or refinancing to pay off the debt.
The current market can absorb extra inventory. When foreclosures hit the market back in 2008, there was an oversupply of houses for sale. “Today is the opposite,” says Cathy. “Back in 2008, there was over a nine-month supply of listings on the market. Today, we have less than a three-month supply.”

If you’re in the market to buy or sell your home this new year, contact Cathy Vick or any of the agents at ERA Justin Realty at 201-939-7500.