Why a Wave of Foreclosures Is Not on the Way

"I'm waiting for the crash."

"I'll buy when prices fall."

"We are in a housing bubble again"

"The market can't sustain these prices"

I hear these statements nearly every day. People are hoping for a crash and listening to some of the media that hypes the rise in prices right now.  With forbearance plans coming to an end, many are concerned or hoping 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 that won’t happen.

THERE ARE SIGNIFICATNLY FEWER HOMES IN TROUBLE RIGHT NOW

After the last housing crash, about 9.3 million people lost their home to foreclosure, short sale, or they just walked away and let the bank take it back. When so many people stayed home last year during the pandemic, many assumed that up to 30% would enter the forebearance program. Actually, only 8.5% did and there are 2.2% remaining in the program.

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 homes just over a decade ago.

MOST OF THE HOMES IN FOREBEARANCE HAVE ENOUGH EQUITY TO SELL THEIR HOME

As you well know, housing prices have risen rapidly. Of the 1.22 million homes in forebearance, 93% have at least 10% equity, which gives them room to sell if needed. If the remaining 7% go into foreclosure, that would total about 85,400 homes. Just to give this number perspective, here are the annual foreclosure numbers for the 3 years leading up tot he 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 housing 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 EASILY ABSORB ANY LISTINGS COMING TO THE MARKET

When foreclosures hit the market in 2008, there was an over supply of inventory, unlike our current dearth of inventory. In 2008, we had 9 months of inventory. In our area, we have 2-3 weeks of inventory.

BOTTOM LINE

This indicates why Ivy Zelman, founder of the major housing market analytical firm, Zelman and Associates, was exactly right when she stated:

“The likelihood of us having a foreclosure crisis again is about zero percent.”