Forbearance and foreclosure
Lots of people are wondering whether the end of mortgage forbearance will result in a spike in home foreclosures. According to the experts, the answer is “no”. The recent sharp increase in home prices harkens back to the time period just prior to the crash of 2008. However, the other market conditions at that time which contributed to the bursting of the housing bubble are notably absent this time.
Some of the relevant differences compared with the market in 2008 include:
Fewer people needing forbearance
In 2008, 9 million homeowner’s found themselves in trouble and unable to pay their mortgages. At this time, there are fewer than 2 million enrolled in the forbearance program, so the toll on the economy as a whole is much less. Furthermore, the number of people enrolled in forbearance programs continues to drop as more and more people are back to work, earning money again.
More equity, on average in homes
In 2008, many home owners had very little equity in their homes. Nearly 90% of those enrolled have at least 10% equity, which means they can sell their homes and pay the banks back, prior to entering foreclosure.
Programs in place to assist struggling home owners
Because of the effects of the 2008 crash as well as the government involvement in managing the pandemic, there are programs in place to help homeowners currently in forbearance. As a result, fewer people should find themselves in foreclosure.
Low housing inventory
Continued high demand for houses means that owners who do need to sell their homes in order to avoid foreclosure are more likely to find buyers. If they can sell before they are too far behind on their mortgages, they will not be in as bad a position.
High home prices
A corollary to low inventory, high prices also help owners in danger of foreclosure. The more they net for their homes, the more likely it is they can satisfy the bank.
A small increase in foreclosures is likely
While all of the above data supports the prediction that there won’t be a enormous spike in foreclosures once forbearance ends, a small increase is expected. Even with the programs in place to help hard-hit home owners, there will be some unlucky people who are over-leveraged and/or have not seen a resumption of income. There may be people who only recently purchased and have very little equity. If you are concerned about finding yourself in foreclosure, click here. Either way, we will probably see an increase. It won’t be huge, though, and it is certainly not expected to lead to a housing crash or recession.