Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not. The question now is: how many of them will be able to catch up after their forbearance program ends?
There’s speculation that a forthcoming wave of foreclosures could be the result, and that could lead to another crash in home values like we saw a decade ago. However, today’s situation is different than the 2006-2008 housing crisis as many homeowners have tremendous amounts of equity in their homes.
What are the experts saying?
According to Michael Sklarz, President at Collateral Analytics, “We may very well see a meaningful increase in the number of homes listed for sale as these borrowers choose to sell at what is arguably an intermediate top in the market and downsize to more affordable homes rather than face foreclosure.”
According to Odeta Kushi, Deputy Chief Economist at First American, “With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock.”
And according to Don Layton, Senior Industry Fellow at the Joint Center for Housing Studies of Harvard University, “So, what should lenders and servicers expect: a large number of foreclosures or only a modest increase? I believe the latter.”
Won’t the additional homes on the market impact prices? Distressed properties (foreclosures and short sales) sell at a significant discount. If homeowners sell instead of going into foreclosure, the impact on the housing market will be much less severe. We must also realize there is currently an unprecedented lack of inventory on the market.
Just last week, realtor.com explained, “Nationally, the number of homes for sale was down 39.6%, amounting to 449,000 fewer homes for sale than last December.” It’s important to remember that there weren’t enough homes for sale even then, and inventory has only continued to decline.
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