We Will NOT See a Wave a Foreclosures Next Year. Here’s Why.

With the housing market growing in its strength each day and more Americans returning to work,  we are seeing a recovery in the housing sector faster than expected. Are we going to see a wave of foreclosures too, as a result of the pandemic? Research is showing that the number of foreclosures will be much lower than expected, and much lower than we saw during last recession. Here is why:

Black Knight, Inc., a leading property data provider of public record data explained that the number of those in active  forbearance has been leveling-off over the past month (see graph below):

They also noted, that from the original 4,208,000 families that were granted forbearance, only 2,588,000 of these homeowners got an extension. Many of these homeowners started to pay their mortgages again, paid off their homes, or never went delinquent on their payments in the first place. They may have applied for forbearance out of fear or precaution, but never really needed it (see graph below):

We have found that the homeowners and the housing market in general are in a much better position than many may think. Much of that has to do with the fact that today’s homeowners have built more equity over the years that most people realize. According to John Burns Consulting, over 42% of homes are owned free and clear, meaning they no longer carry a mortgage. Of the remaining 58%, the average homeowner has $177,000 in equity. That number is keeping many homeowners afloat today and giving them options to avoid foreclosure.

While ATTOM Data Solutions indicates that there is a potential for the number of foreclosures to increase throughout the country, and they state that the total number could be from about 225,000 to 500,000 homeowners around the country, but it’s important to understand why they won’t rock the housing market this time around:

 “The United States faces a possible foreclosure surge over the coming months that could more than double the number of households threatened with eviction for not paying their mortgages.”

That number may sound massive, but it is actually much smaller than it seems at first glance. Today’s actual quarterly active foreclosure number is 74,860. That’s over 7.5x lower than the number of foreclosures the country saw at the peak of the housing crash in 2009. When looking at the graph below, it’s clear that even if the number of quarterly foreclosures today doubles, as ATTOM Data Solutions indicates is a possibility (not a given), they will only reach what historically-speaking is a normalized range, far below what up-ended the housing market roughly 10 years ago. Equity is growing, jobs are returning, and the economy is slowly recovering, so the perfect storm for a wave of foreclosures is not realistically in the housing market forecast. As Odeta Kushi, Deputy Chief Economist for First American notes:

“Alone, economic hardship and a lack of equity are each necessary, but not sufficient to trigger a foreclosure. It is only when both conditions exist that a foreclosure becomes a likely outcome.”

While we feel for anyone who may end up in foreclosure as a result of this crisis, we do know that today’s homeowners have more options than they did 10 years ago. For some, it may mean selling their house and downsizing with that equity, which is a far better outcome than foreclosure.

BOTTOM LINE

Homeowners today have many options to avoid foreclosure, and equity is surely helping to keep many afloat. Even if today’s rate of foreclosures doubles, it will still only hit a mark that is more in line with a historically normalized range, a very good sign for homeowners and the housing market.

[email protected]