With the end of the forbearance plans, many fear the housing market will experience a wave of foreclosures similar to what happened after the housing bubble 15 years ago. Here are a few reasons why this won’t happen.
There are fewer struggling owners this time around
After the last housing crash, around 9.3 million households lost their homes due to foreclosure, short sale, or simply returning them to the bank.
As stay-at-home orders were issued early last year, fears were that the pandemic would have a similar impact on the housing industry. Many predicted that up to 30% of all mortgage holders would join the forbearance program. In fact, only 8.5% did, and that number has now dropped to 2.2%.
As of Friday, the total number of mortgages still withheld stood at 1,221,000. This is far less than the 9.3 million households that lost their homes just over a decade ago.
Most Forbearance Mortgages Have Enough Equity To Sell Their Home
Due to the rapid rise in home prices over the past two years, of the 1.22 million homeowners currently forborne, 93% have at least 10% of their home equity. This 10% equity is important because it allows homeowners to sell their home and pay related expenses instead of facing the blow to their credit that a foreclosure or short sale would cause.
The remaining 7% may not have the option to sell, but if all 7% of those 1.22 million homes were foreclosed, that would add up to about 85,400 mortgages. To give that number some context, here are the annual lockdown numbers for the three years leading up to the pandemic:
- 2017: 314,220
- 2018: 279,040
- 2019: 277,520
The likely number of foreclosures resulting from the forbearance program is a far cry from the number of foreclosures that impacted the real estate crash 15 years ago. That’s actually less than a third of the three years leading up to the pandemic.
The current market can absorb the ads coming into the market
When foreclosures hit the market in 2008, there was an oversupply of homes for sale. It is exactly the opposite today. In 2008, there were over nine months of listings on the market. Today that number is less than a three month supply. Here is a graph showing the difference between the two markets.
Data shows why Ivy Zelman, Founder of Leading Housing Market Analysis Company Zelman and associates, was on point when she said:
“The likelihood that we will have a foreclosure crisis again is about zero percent. “