The pandemic has presented some challenges, for the housing market. Recently there have been regulations affecting real estate that will have lasting impacts on the industry.
To address the repercussions of COVID 19 the U.S. Government has implemented measures to prevent people from losing their homes during this crisis. While these initiatives have helped renters and homeowners maintain stability amid job loss and difficulties they have also left others in a state of uncertainty such as banks, investors and institutions holding mortgages for those affected. Eventually these mortgages will need to be addressed, with homeowners returning to work and resuming payments.
The long term consequences of current forbearance policies are raising concerns, about a foreclosure crisis to that of 2008 2009. Even if such extreme scenarios are avoided
what impact will todays policies have on the housing market?
As we monitor how the housing market evolves it is crucial to consider how forbearance is influencing mortgages, foreclosures and overall market dynamics.
In 2020 there was a period of mortgage forbearance introduced due, to the impact of COVID 19. The CARES Act, enacted by Congress in March aimed to provide relief during the income disruptions caused by the pandemic.
Under this plan both renters and homeowners were granted relief on their housing payments. Homeowners with backed loans, such as those from Fannie Mae and Freddie Mac were protected from foreclosure actions until at August 31st.
For homeowners with government backed mortgages facing challenges due to COVID 19 there is an option to request an additional 6 month forbearance period on their loan repayment. If necessary another 6 month extension can be sought if payment difficulties persist.
It’s important to note that the CARES Act primarily impacts homeowners with government backed loans. This means that many homeowners with mortgages from lenders may not have access, to forbearance options as only a small percentage of private lenders are offering such policies.
Its been five months since the latest data reveals that 4.1 million homeowners are still enrolled in forbearance programs. With markets reopening and households slowly recovering the number of mortgage forbearances is gradually decreasing.
Overall the COVID triggered forbearance policies have put homeowners in a position. While entering forbearance might have seemed simple exiting it is a story. When in forbearance payments are not reduced or eliminated; they are only deferred to a date. Some lenders may allow borrowers to add these payments to the end of their loan while others may not.
Foreclosure rates have started rising in regions, across the country signaling that the initial COVID 19 forbearance period is nearing its conclusion.
The big question looms;
What will happen when all these homeowners are suddenly required to catch up on months of missed mortgage payments? Fortunately with some flexibility from banks and government assistance many will be able to refinance set up payment arrangements and get back, on track with their mortgages.
However for some individuals foreclosure may become unavoidable. This could lead to an influx of foreclosure properties flooding the market like a dam breaking open.
Perspective, on Forbearance and its Effects on Foreclosure Rates
Foreclosures have significantly slowed down since March. Properties in the foreclosure process paused due to court closures and the implementation of the CARES Act. Many homeowners have been able to delay foreclosure until their forbearance ends during this grace period.
It’s crucial to note that foreclosures are an occurrence. Regardless of whether they’re pandemic related some households may face foreclosure due to difficulties without a clear resolution.
The Mortgage Bankers Association reports that 250,000 new families enter foreclosure every three months. This results in 1 million homeowners facing foreclosure within a year. A substantial increase in foreclosures is not uncommon; it is actually typical.
Therefore when analyzing the data it’s important to acknowledge that, among affected homeowners there will be a number who may not be able to prevent foreclosure.
Predicting the future of scenarios requires meticulous attention to detail.
If the housing market won’t likely witness homes going into foreclosure it’s also unlikely to boast a flawless 0% foreclosure rate once the forbearance period concludes. The reality lies somewhere, between these two extremes.
For those considering purchasing foreclosed properties now is a time to explore the market. Once the forbearance period concludes and foreclosures resume there will be a surge of foreclosed homes. Including those that were pending since March. Following months of no foreclosure listings we can anticipate an increase in properties gradually entering the market.
Looking Forward; Foreclosure Property Sales and Housing Trends
Concerned about a market crash of 2008 09? It’s crucial to note the impactful differences between todays circumstances and past events.
The housing crisis from over a decade ago stemmed from issues with bank financing. Today however widespread income disruptions are at play. With banks playing a role, in stabilizing the situation.
The current situation, with a rise in unemployment and a significant increase in the wealth gap within the country may seem reminiscent of recession patterns but a closer look reveals that a catastrophic national economic collapse might not necessarily be on the horizon.
One key factor that could prevent a repeat of the 2008 crisis is the level of home equity. Recent data from Black Knight Data & Analytics indicates that 80% of homeowners in forbearance actually have equity in their homes. So even if these homeowners are facing job losses and struggling to meet mortgage payments they still have equity tied up in their properties. This means they might have the option to sell their homes than facing foreclosure possibly even walking away with some cash.
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