Have seen recent stories about the volume of foreclosures today? Well, context is important. During the pandemic, many homeowners were able use the forbearance program and pause their mortgage payments. The goal was to help homeowners financially during the uncertainty created by the health crisis.
When the forbearance program began, many experts were concerned it would result in a wave of foreclosures coming to the market. That we could see another housing crash like we did in 2008. That’s simply very unlikely. Let’s look at why the number of foreclosures we’re seeing today is nothing like the last time.
1. There Are Fewer Homeowners in Trouble
Today’s data shows that most homeowners are exiting 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 graph below depicts those findings from the Mortgage Bankers Association (MBA):
There are approximately 525,000 homeowners who remain in forbearance today, as mentioned by the MBA report above. Thankfully, those in forebearance still have the chance to work out a suitable repayment plan..
2. Most Homeowners Have Enough Equity To Sell Their Homes
For those who are exiting the forbearance program without a plan in place, many will have enough equity (thanks to the recent rapidly rising home prices) to sell their homes instead of facing foreclosures.
Marina Walsh, CMB, Vice President of Industry Analysis at MBA, says:
“Given the nation’s limited housing inventory and the variety of home retention and foreclosure alternatives on the table across various loan types, . . . Borrowers have more choices today to either stay in their homes or sell without resorting to a foreclosure.”
3. There Have Been Fewer Foreclosures over the Last Two Years
One of the seldom-reported benefits of the forbearance program was it gave homeowners facing difficulties an extra two years to get their finances in order and work out a plan with their mortgage servicer. Had the new forbearance program not been available, we certainly would have seen more foreclosures hit the market.
There are still fewer foreclosures happening today than before the pandemic even as people leave the forebearance program. That means, while there are more foreclosures now compared to last year (when foreclosures were paused), the number is still well below what the housing market has seen in a more typical year, like 2017-2019 (see graph below):
4. The Current Market Can Easily Absorb New Listings
When the foreclosures in 2008 hit the market, they added to the oversupply of houses that were already for sale. It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:
“Total housing inventory at the end of March totaled 950,000 units, up 11.8% from February and down 9.5% from one year ago (1.05 million). Unsold inventory sits at a 2.0-month supply at the present sales pace, up from 1.7 months in February and down from 2.1 months in March 2021.”
A balanced market has been said to be a four to six month supply of inventory. At 2 months (less in the Seattle market), today’s housing inventory is severely understocked. Even if one million homes enter the market (nationally), there still would not be enough inventory to meet the current demand.
Bottom Line
If you see headlines about the increasing number of foreclosures today, remember context is important. While it’s true the number of foreclosures is higher now than it was last year, foreclosures are still well below pre-pandemic years. Also keep in mind that our market is still strong, and likely will continue to be strong. While foreclosures are bound to come up in our market, I urge anyone watching the market strictly for foreclosures to come up with another housing plan.
If you have questions, reach out and let’s chat about the latest market conditions and what they mean for you.