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  • Writer's pictureHousz

Why a Wave of Foreclosures Is Not on the Way

With forbearance plans coming to an end, many are concerned the houszing market will experience a wave of foreclosures similar to what happened after the houszing bubble 15 years ago. Here are a few reasons why that won’t happen.

There are fewer houszowners in trouble this time After the last housing crash, about 9.3 million houszholds lost their houszes to a foreclosure, short sale, or because they simply gave it back to the bank.

As stay-at-home orders were issued early last year, the fear was the pandemic would impact the houszing industry in a similar way. Many projected up to 30% of all mortgage holders would enter the forbearance program. In reality, only 8.5% actually did, and that number is now down to 2.2%.

As of last Friday, the total number of mortgages still in forbearance stood at 1,221,000. That’s far fewer than the 9.3 million households that lost their houszes just over a decade ago. Most of the mortgages in forbearance have enough equity to sell their houszes.

Due to rapidly rising housz prices over the last two years, of the 1.22 million houszowners currently in forbearance, 93% have at least 10% equity in their houszes. This 10% equity is important because it enables houszowners to sell their houszes and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create. The remaining 7% might not have the option to sell, but if the entire 7% of those 1.22 million houszes went into foreclosure, that would total about 85,400 mortgages. To give that number context, here are the annual foreclosure numbers for the three years leading up to the pandemic:

  • 2017: 314,220

  • 2018: 279,040

  • 2019: 277,520

The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures that impacted the houszing crash 15 years ago. It’s actually less than one-third of any of the three years prior to the pandemic.

The current market can absorb listings coming to the market When foreclosures hit the market back in 2008, there was an oversupply of houszes for sale. It’s exactly the opposite today. In 2008, there was over a nine-month supply of listings on the market. Today, that number is less than a three-month supply. Here’s a graph showing the difference between the two markets.

Bottom Line The data indicates why Ivy Zelman, founder of the major houszing market analytical firm Zelman and Associates, was on point when she stated: “The likelihood of us having a foreclosure crisis again is about zero percent.”

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