At the start of the economic disruptions caused by the COVID pandemic, the government quickly set up tolerant plans to allow homeowners to stay in their homes without making their monthly mortgage payments. Today nearly three million homes are actively in a patient plan. However 29.4% of those in tolerance continued to remain current about their payments, many did not.
Yanling Mayer, Chief Economist at CoreLogic, lately revealed:
A distributed analysis of the payback status of foreclosure loans reveals that more than a third (39.1%) of all foreclosure loans now pay more than 150 days, while 1-in-4 (25.5%) have spent more than 180 days appropriate. “
These homeowners have been given permission not to make their payments, but the question now is: how many will they be able to reach after their tolerance program ends? It is speculated that an upcoming wave of foreclosures could be the result, and that could lead to another crash in home values, as we saw a decade ago.
However, the current situation differs from the 2006-2008 housing crisis, as many homeowners have a huge amount equality in their homes.
What do the experts say?
Over the last 30 days, several industry experts have pondered this issue.
“We may very well see a significant increase in the number of homes sold like these borrowers choose to sell at what is probably a middle top in the market and reduce to more affordable homes instead of facing foreclosure. “
“The execution process is based on two steps. First, the homeowner suffers an adverse economic shock … causing the homeowner to default on his mortgage. However, delinquency alone is not enough to send a mortgage to foreclosure. With enough equity, a homeowner has the option to sell their home or exploit their equity by refinancing, to help withstand the economic shock.. It is a lack of sufficient equality, the second element of the double trigger, that causes serious crime to become execution. “
“With a larger cushion of equity, troubled homeowners have dramatically improved options: greater ability to access financing (e.g., home equity lines) to continue to pay monthly expenses until family funds could recover, improved ability to qualify for and support loan modification. and, if a push comes, the ability to sell the home and monetize their increased net worth by reducing monthly payment obligations. So what should lenders and servants expect: a large number of foreclosures or just a modest increase? I believe the latter. “
With today’s positive equity situation, many homeowners will be able to use a loan modification or refinance to stay in their homes. If not, some will go to foreclosure, but most will be able to sell and leave with their equity.
Will the additional homes in the market not affect prices?
Distressed real estate (foreclosures and short sales) is sold at a significant discount. If homeowners sell instead of executing foreclosure, the impact on the housing market will be much less severe.
We must also note that there is currently an unprecedented lack of inventory on the market. Just last week realtor.com explained:
“Nationally the number of homes for sale decreased by 39.6%, totaling 449,000 fewer homes for sale than last December.”
It’s important to remember that there weren’t even enough homes for sale even then, and inventory only continued to decline.
The market has the potential to absorb half a million homes this year without causing a devaluation of home values.
The pandemic has caused both personal and economic hardship for many U.S. households. However, the overall residential real estate market has withstood the storm and will continue to do so in 2021.
Content previously posted in Keep Current Things