Here’s why I predict we won’t see a foreclosure crisis next year.
I’m sure you know all about how the pandemic and subsequent lockdowns hurt the economy. Most people lost their jobs or had their hours cut, and as a result, are struggling to make mortgage payments.
You’ve also probably heard about various forbearance programs, or temporary private and government-funded programs that allow homeowners to reduce or postpone their monthly payments. As it stands, nearly 3.7 million borrowers are in mortgage forbearance programs—about 7% of all active mortgages. Many of these people just hit the six-month mark of their forbearance.
The question then becomes: What happens in another six months when the maximum term for these forbearance periods come to an end? This brings us to the possibility of a foreclosure crisis. Many homeowners will still not be able to make their mortgage payments as their forbearance programs run out. Unfortunately, some will be forced to go into foreclosure.
However, I’m not expecting a repeat of 2008 for two reasons: current sky-high home prices and record-low mortgage rates. These unique circumstances mean most homeowners have equity in their homes right now. In fact, home equity for homeowners with a mortgage rose 6.6% during the second quarter of this year. This rise in equity means homeowners have options, even if they’re struggling to make payments. They can put their homes on the market and sell them rather than lose them to foreclosure.
What does this mean for you? The current real estate market is short on homes. Properties are selling quickly and for record-high prices simply because demand is so much higher than supply. If we don’t see this supposed foreclosure crisis materialize (which I’m confident we won’t), there will still be a flood of new homes for sale, which will put a chill on—or even reverse—home price growth. The result will be a more balanced market where buyers will have more leverage.
The bottom line is that you should keep this information in mind if you’ve been thinking about selling soon but are still on the fence. Feel free to use our home value calculator to get an idea of what your home would fetch on the current market. You can also give me a call and I’d be happy to answer any questions you have. I look forward to assisting you.