With forbearance plans about to come to an end, many are concerned the housing market will experience a wave of foreclosures like what happened after the housing bubble 15 years ago. Here are four reasons why that won’t happen.
1. There are fewer homeowners in trouble this time
After the last housing crash, about 9.3 million households lost their home 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 overwhelming fear was the pandemic would decimate the housing industry in a similar way. Many experts projected 30% of all mortgage holders would enter the forbearance program. Only 8.5% actually did, and that number is now down to 3.5%.
As of last Friday, the total number of mortgages still in forbearance stood at 1,863,000. That’s definitely a large number, but nowhere near 9.3 million.
2. Most of the 1.86M in forbearance have enough equity to sell their home
Of the 1.86 million homeowners currently in forbearance, 87% have at least 10% equity in their homes. The 10% equity number is important because it enables homeowners to sell their houses and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.
The remaining 13% might not all have the option to sell, so if the entire 13% of the 1.86M homes went into foreclosure, that would total 241,800 mortgages. To give that number context, here are the annual foreclosure numbers of 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 coming out of the housing crash 15 years ago. The number does, however, draw a similar comparison to the three years prior to the pandemic.
3. The current market can absorb any listings coming to the market
When foreclosures hit the market in 2008, there was an excess supply of homes for sale. The situation is exactly the opposite today. In 2008, there was a 9-month supply of listings for sale. Today, that number stands at less than 3 months of inventory on the market.
As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains when addressing potential foreclosures emerging from the forbearance program:
“Any foreclosure increases will likely be quickly absorbed by the market. It will not lead to any price declines.”
4. Those in power will do whatever is necessary to prevent a wave of foreclosures
Just last Friday, the White House released a fact sheet explaining how homeowners with government-backed mortgages will be given further options to enable them to keep their homes when exiting forbearance. Here are two examples mentioned in the release:
“For homeowners who can resume their pre-pandemic monthly mortgage payment and where agencies have the authority, agencies will continue requiring mortgage servicers to offer options that allow borrowers to move missed payments to the end of the mortgage at no additional cost to the borrower.”
“The new steps the Department of Housing and Urban Development (HUD), Department of Agriculture (USDA), and Department of Veterans Affairs (VA) are announcing will aim to provide homeowners with a roughly 25% reduction in borrowers’ monthly principal and interest (P&I) payments to ensure they can afford to remain in their homes and build equity long-term. This brings options for homeowners with mortgages backed by HUD, USDA, and VA closer in alignment with options for homeowners with mortgages backed by Fannie Mae and Freddie Mac.”
When evaluating the four reasons above, it’s clear there won’t be a flood of foreclosures coming to the market as the forbearance program winds down.
Bottom Line
As Ivy Zelman, founder of the major housing market analytical firm Zelman & Associates, notes:
“The likelihood of us having a foreclosure crisis again is about zero percent.”
One of the hottest topics of conversation in today’s real estate market is the shortage of available homes. Simply put, there are many more potential buyers than there are homes for sale. As a seller, you’ve likely heard that low supply is good news for you. It means your house will get more attention, and likely, more offers. But as life begins to return to normal, you may be wondering if that’s something that will change.
While it may be tempting to blame the pandemic for the current inventory shortage, the pandemic can’t take all the credit. While it did make some sellers hold off on listing their houses over the past year, the truth is the low supply of homes was years in the making. Let’s take a look at the root cause and what the future holds to uncover why now is still a great time to sell.
Where Did the Shortage Come From?
It’s not just today’s high buyer demand. Our low supply goes hand-in-hand with the number of new homes built over the past decades. According to Sam Khater, VP and Chief Economist at Freddie Mac:
“The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.”
Data in a recent report from the National Association of Realtors (NAR) tells the same story. New home construction has been lagging behind the norm for quite some time. Historically, builders completed an average of 1.5 million new housing units per year. However, since the housing bubble in 2008, the level of new home construction has fallen off (see graph below):The same NAR report elaborates on the impact of this below-average pace of construction:
“. . . the underbuilding gap in the U.S. totaled more than 5.5 million housing units in the last 20 years.”
“Looking ahead, in order to fill an underbuilding gap of approximately 5.5 million housing units during the next 10 years, while accounting for historical growth, new construction would need to accelerate to a pace that is well above the current trend, to more than 2 million housing units per year. . . .”
That means if we buildeven more new houses than the norm every year, it’ll still take a decade to close the underbuilding gap contributing to today’s supply-and-demand mix. Does that mean today’s ultimate sellers’ market is here to stay?
We’re already starting to see an increase in new home construction, which is great news. But newly built homes can’t bridge the supply gap we’re facing right now on their own. In the State of the Nation’s Housing 2021 Report, the Joint Center for Housing Studies of Harvard University (JCHS) says:
“…Although part of the answer to the nation’s housing shortage, new construction can only do so much to ease short-term supply constraints.To meet today’s strong demand, more existing single-family homes must come on the market.”
Early Indicators Show More Existing-Home Inventory Is on Its Way
When we look at existing homes, the latest reports signal that housing supply is growing gradually month-over-month. This uptick in existing homes for sale shows things are beginning to shift. Based on recent data, Odeta Kushi, Deputy Chief Economist at First American, has this to say:
“It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply.”
“As the inventory is beginning to pick up ever so modestly, we are still facing a housing shortage, but we may have turned a corner.”
So, what does all of this mean for you? Just because life is starting to return to normal, it doesn’t mean you missed out on the best time to sell. It’s not too late to take advantage of today’s sellers’ market and use rising equity and low interest rates to make your next move.
Bottom Line
It’s still a great time to sell. Even though housing supply is starting to trend up, it’s still hovering near historic lows. Let’s connect to discuss how you can list your house now and use the inventory shortage to get the best possible terms for you.
If you’re a prospective buyer or seller, it’s important to understand the current real estate market conditions and how they affect you. The Counselors of Real Estate (CRE) just released its Top Ten Issues Affecting Real Estate report. Here are three hot topics from the list and how they impact today’s housing market.
Technology Acceleration and Innovation
The past year ushered in many changes to the real estate industry, especially when it comes to technology. The CRE report elaborates on this:
“Lockdown-driven changes in our work, in the economy, in social structures, and in our personal behavior have pushed our reluctance aside. The acceleration and adoption of technology during the pandemic has impacted everything, and real estate is no exception.”
For real estate, innovations like digital documentation, virtual tours, and video chat enable agents to connect with clients no matter their location. These options are ideal for prospective buyers and sellers who aren’t local to the area or those that need the added flexibility signing documents online or doing virtual tours provide. That’s why many trusted real estate advisors will continue to use these technologies moving forward to best serve their clients.
Remote Work and Mobility
Working from home became the reality for many individuals during the pandemic, and the latest list from the CRE identified remote work and mobility as an important influence on the real estate market. As the report notes:
“…the pandemic universally caused a movement away from urban cores, particularly for those with higher incomes who could afford to move and for lower-income individuals seeking lower costs of living. Most of these relocations remained within their original region—84%—and, while some are returning, it is unknown as to the permanence of these movements or whether they represent a true urban exodus.”
With the added mobility remote work offers, where people are moving and where they can ultimately purchase a home is less dependent on a physical office location. This newfound flexibility is giving remote workers the opportunity to move to more affordable areas and buy more home for their money.
Housing Supply and Affordability
Finally, the limited supply of houses for sale and the related affordability challenges also makes CRE’s list of key factors this year:
“According to the National Association of Realtors®, the state of America’s housing inventory is dire, with a chronic shortage of affordable and available homes needed to support the nation’s population.”
There is good news. Homes are still more affordable than they have been historically thanks to today’s low mortgage rates. And while housing supply is still low, we’re seeing steady increases in the number of homes coming to market, which gives hope to homebuyers. As the supply of homes for sale improves, buyers will have more options.
Bottom Line
New technology, remote work, housing supply, and home affordability are key factors in the housing market right now for both buyers and sellers. If you want to better understand how these topics can impact you, let’s connect today.
(Transcript Snippet): ” Tego: Tracy. I want to just go back to the thing about is the market slowing, because like I said, there has been some news stories out there implying that maybe the real estate market’s slowing down and it really isn’t even nationally, even in some of these other markets, because w th the story that’s actually out there is that inventory is starting to grow a little bit in some parts of the country. It’s not that the real estate market’s slowing down
Tracy:
Well, and I bet you have stats to prove what’s, you’re about to say, well, what I, I just, you know, it’s that time
Tego:
Of the month where it’s mid, mid month, I wanted to see where we were for July this year versus in particular July last year, because July last year, July, 2020 is when the real estate market just went nutty.
Tracy:
This was right after COVID right? So March, April, may, June, July, all those people, June, June is
Tego:
When all of a sudden everybody decided it was time to buy a house in there. We hadn’t had any listings in April, may of last year
Tracy:
Was pretty much shut down. So I didn’t say
Tego:
Any, it was half the number of new listings. Yes.
Tracy:
My point is July last year, despite COVID was a record month, it
Tego:
Was the busiest closing month on record for the Albuquerque area, July of 2020. Right? Right now, July of 2021, pendings are up 15% over last year, just in the first 15 days. And the number of closings is about equal with, with last year right now, the number of homes on the market, it’s down 23% just versus last year. So yeah, we’re less houses on the market. We’re it’s not slowing down. That’s
Tracy:
Not in our market. No, no. So,
Tego:
And there was you know, I don’t know, I know you saw Tracy, but you all might’ve caught it, that there was a story in the journal this week where Stephen Hanway does the real estate beat, I guess, if you would say, and he called me and got a couple, just, you know, put a few quotes on there. One of them was there’s, you know, like I said, the story that there’s more homes in the inventory starting to come in, and there’s more homes on the market and I cautioned him and I’m glad he printed it, that, that it’s maybe just seasonal cyclical that, you know, we’re going to have a little bit of build this time a year. And I think it’s gonna, you know, just kind of stay flat and probably declined throughout the year. So if you’re out there thinking of buying, if, if you’re thinking that you’re going to wait until more homes come on, the market later this year, probably not going to happen is, is my call on that. So I’ll just say
Eddie:
That. Yeah, because I mean, that wasn’t as clear as that I would like for it to be hearing you. So what you’re saying is cyclically every year about this more homes are basically delivered. They hit the market, but even though those homes are coming onto the market, it doesn’t mean that there’s going to be more opportunity, more houses, more inventory, necessarily that is going to get absorbed right away.
Tego:
It is. And I don’t see generally what happens. Inventory builds up until July, August, if you want to say that, right? So the number of homes available and then come July, August, it starts to drop off all the way through till February. And that’s just a normal seasonal pattern for our market.
Eddie:
Those are free. So I imagine those are kind of presale. Are they not reconstruction training? You brought on new con construction people on board. Several times, you’ve had several home builders who’ve come on. There’s like people beating down their door or something like that. I mean, this is something that you guys work on. You can take people to places where, you know, that inventory is going to be rolling out. And I got to, I got to say, that’s, that’s worth a, what do they say? A bird in the hand? You know, that really is a good opportunity there to jump in. And another reason to pick up the phone and call a Tigo and Tracy Venturi 4, 4, 8 88, 88, that’s 4, 4, 8 88, 88. And we are alive this morning. So if you want to know and get a heads up on where that might potentially could be and delivered, all depends upon the city of your city or Rio Rancho. Just go ahead and give them a call. Thank you for clarifying that. Yeah,
Tego:
No, no, thanks. And I want to just bring in one other stat. I don’t want to, I don’t want to confuse people, but, but again, this whole story of, oh, you know, home prices are going up way too fast, which I would, I would tend to agree with. And, and we’re going to have a bubble and prices are going to explode and go down. And one of the things we have to look at always is supply versus demand, right? That drives everything in, in pricing, on, on any, any product in, in homes in particular. And what I found is right now, we have about 1100 homes on the market in July of 2007. That’s when let’s say the bubble burst back in the day, when, when home prices started to decline in 2007, at that time, we, we didn’t, I’m trying to say this. So so it’s more succinct, succinct, and not, not complicated. There were S we had over 7,000 homes on the market, in the greater Albuquerque area in July of 2007, when prices started to go down
Tracy:
Another way to start to shift until we had over 7,000 houses.
Tego:
That’s a great way to put it. So, so if you were to just go with that, that one metric, and I know that’s just one thing we would need six times more inventory that was, we say, you know, homes available on the market than we currently have before we start to see a shift in pricing.
Tracy:
And we could see a shift in pricing well, before that, of course, but that’s what the history was. We were over 7,000 houses on the market before we started seeing prices come down. Yep. Back in 2007. And
Tego:
I’ve been saying this now for month and month, I keeps saying we could have four or 5,000 homes, 6,000 homes on the market tomorrow, and still not be in a, a buyer’s market.
Tracy:
And, you know, it could shift, let’s say we have 4,000 on the market, but interest rates change drastically. We could see price changes. We just know from what we hear politically through the economy that they’re not planning to do major changes in, in the interest rate. Right. So that’s part of our, where we were going. We’re going to talk a little bit about the second half of this year since we’re into it now, right?
Tego:
Yeah. And, oh my gosh, you know, how do we do this? We go so fast. We’ve just got so much to cover. So Tracy, let’s just talk about a few predictions from the experts. I’m going to say that the air quote experts. Yes. I think 2020 nevermind. I’m not going to go there. I was going to talk about experts in, in the year 2020. So what, what are the real estate, you know, prediction makers, you know, what are they saying about the market tracing? What are they saying about mortgage rates? Let’s say,
Tracy:
No, they say mortgage rates will likely increase a little bit by the end of the year, but a little bit, we’re not talking anything major. Right.
Tego:
And based on the announcement this week, it doesn’t look like there’s going to be much. I mean, I know that the fed rate is not necessarily tied to mortgage rates. It’s more about the 10 year bond yield that, that ties to mortgage rates. But, you know, as long as the 10 years, under 2%, we’re still going to see really low mortgage
Tracy:
Rates, right? Another end of year price appreciation, Tigo
Tego:
Price appreciation from a lot of the different groups out there. So Zelman and associates, which is one of the big consulting firms in the real estate space there, they’re seeing 10% year over year for 2021 nationally 10.6% mortgage bankers association saying over 10% national association of realtors, our association is saying 9% Fannie Mae and Freddie Mac. Fanny’s got it at 8% Freddie, Mac’s got it at 6.6. So, you know, everybody is predicting an increase. I saw some numbers from another consulting firm just this week. And they’re seeing 20% year over year increase in median price, which is a little bit different than total price appreciation, but you know, home prices are going up and, and, and, and back to that whole thing about the market and the market slowing, I think the one thing that will slow this market down is we just get way too far ahead of ourselves on home prices, where people can’t, you know, they just can’t make it work. You know it, and then you got this whole thing, Tracy, it’s like, well, everybody’s got lifts somewhere, either got to rent, or you’ve got to buy, or you got to live with family or whatever, right back to the whole conversation about, you know a multi-generational
Tracy:
Housing. Right. And what we know is rent, rent rates have gone up significantly too. So even though the home prices have gone up, it’s still mostly cheaper to buy than to rent for the same type of house. There,
Tego:
There is so much research and there’s so many good studies that talk about how, you know, home ownership, let me put it this way. Home ownership, owning a home is affordable housing compared to renting. Right, right. Plus building a nest egg.
Tracy:
What about inventory for the rest of the year? I think nationally, yeah. What the experts
Tego:
Are predicting is nationally that there’s going to be a slight increase in the number of homes coming in into the market. We’re, we’re seeing that in a lot of other parts of the country I’m going to make the call here locally that we’re going to go through the end of this month into August. Inventory is going to stay flat, maybe increase a little bit and then start to decline.
Tracy:
That’s my call. Okay. bottom line, bottom line
Tego:
Is that, you know, mortgage rates are going to stay flat or go up slightly, no big spikes in the future. Inventory is going to go up slightly, but, but not enough to really create a, a buyer’s market, you know, unless, you know, some, some places around the country, but we’re not seeing it here. And, and for the most part, everybody’s pretty optimistic about the real estate market.
The language of buying and selling a home may sound scary at first, but knowing how key terms relate to today’s market can help you. For example, current low mortgage rates and higher wages positively impact affordability for buyers, while home price appreciation continues to grow home equity, which sellers can use to fuel a move up.
Terms like appraisal (what lenders rely on to validate a home’s value) and contingencies (which buyers can minimize to make their offer stand out) directly impact the transaction.
You don’t need to be fluent in the language of the market to buy or sell. Instead, let’s connect today so that we can translate the process together.
![Pop Quiz: Can You Define These Key Terms in Today’s Housing Market? [INFOGRAPHIC]](https://files.simplifyingthemarket.com/wp-content/uploads/2021/07/22135655/20210723-KCM-Share-549x300.png)
![Pop Quiz: Can You Define These Key Terms in Today’s Housing Market? [INFOGRAPHIC] | Simplifying The Market](https://files.simplifyingthemarket.com/wp-content/uploads/2021/07/22135657/20210723-MEM.png)