Foreclosure Wave Due to Forbearance? Numbers Say No

Everyone has heard of the vast number of homeowners who have turned to forbearance during the pandemic amidst economic shutdowns and slowdowns. Forbearance allowed borrowers to pause their payments. Repayment of the missed payments can be done all at once, with a payment plan, or often deferred to the end of the term of the loan.

Everyone seems to jump to the plight and struggles of the Great Recession and believe that the housing market is about to repeat itself. Yet, in August 2008, 9.2% of all U.S. mortgages were either delinquent or in foreclosure. By September 2009, it had risen to 14.4%. Today, 3.4% of all mortgages are in forbearance, which amounts to 1.7 million homeowners. The vast majority of those that remain in forbearance will perform and not become a foreclosure or short sale statistic. Why not? It is important to dive a bit deeper and take a look at the huge number who have already exited forbearance

A total of 7.2 million homeowners have taken advantage of the forbearance program, according to Black Night ®. Over 5.2 million have exited as of mid-June. The vast majority, 90% are either current and paying on time or paid off the balance of the loan in full. Incredibly, 3.4 million, or 65%, are current and paying on time. Another 1.3 million, or 25%, paid off the mortgage through a refinance or the sale of a home. Only 333,000, or 6%, are delinquent and working with the workout department of their bank to come up with a solution. That leaves 195,000 or 4% that are delinquent and on the road to be coming either a short sale or foreclosure statistic. That is 195,000 across the U.S. out of the 5,200,000 that exited forbearance.

Today, 1.74 million homeowners remain in forbearance. Thanks to the screaming hot housing market and skyrocketing home appreciation, most of these homeowners have plenty of equity to sell their home. 87% have at least 10% equity, more than enough to sell and walk away with net proceeds. The 13% remaining amounts to 221,000 homeowners. Many of them will work out some sort of loan modification with their lenders. Lenders have learned many valuable lessons from the Great Recession and are not at all eager to foreclose. But, even if all 221,000 become a foreclosure along with the 195,000 delinquent that exited forbearance and are not coming up with a solution with their bank’s workout unit, the 416,000 total foreclosures nationally pales in comparison to the nearly 9 million households that lost their homes to a foreclosure or short sale after housing crashed in 2007. The probable number of foreclosures is most likely less than 400,000, which would be easily swallowed up in today’s ferociously hot housing market.

At the start of the Great Recession, the supply of available homes to purchase was way too high, over 6 times where it stands today with only 2,520 homes currently available in Orange County. Placing homes on the market, even foreclosures, when housing is starved for more inventory like it is today, will be easily snapped up in an instant. Buyers would welcome the relief of any additional inventory right now and into the foreseeable future. The plight of not enough homes will linger for the rest of the year and throughout 2022 as well.

It is also important to note that there are currently only 13 foreclosures and short sales available in all of Orange County, representing 0.5% of the current inventory. Demand (the last 30-days of pending sales) includes only 6 foreclosures and short sales, 0.2% of total demand. When forbearance ends, the numbers will increase from their all-time lows, but the slight rise will be undetectable within the marketplace.

The bottom line: there will be no wave of foreclosures due to forbearance. The sky is not falling. Instead, everyone should expect more of the same. The ultra-low, anemic inventory will remain, and demand will be juiced due to historically low mortgage rates.

Historical Interest Rates

I receive interest updates from several sources all the time. Recently, one source posted some historical interest rates along with the current interest rates. Thought I would share.

Currently, a 30-year fixed Mortgage rate is 2.77%, 3 basis points lower versus last week! 15-year fixed rate is 2.1%, unchanged versus one week ago.

Now for the historic interest rates:

  • Average 30-year Interest Rate in the 2010’s: 4.1%
  • Average 30-year Interest Rate in the 2000’s: 6.9%
  • Average 30-year Interest Rate in the 90’s: 8.1%
  • Average 30-year Interest Rate in the 80’s: 12.7%

Interest rates have an affect on home prices, as you might expect. When I purchased a home in the early 1980’s in South Orange County, it cost $157,000. That’s about what I could afford with a 12% interest rate! If rates were lower at the time, I, along with thousands of other buyers, could afford more home! It would most likely have driven up home prices (supply and demand).

Return on a Kitchen Remodel

I recently spoke with a long-time client of mine about a kitchen remodel they were contemplating. She wanted to know what kind of return she would get on her investment of a complete kitchen remodel. I told her she could expect about 98%, but it could be more!

If you were able to do some of the work yourself or maybe refurbish the cabinets rather than replace, you most likely would get that 100% return.

I also think it has a lot to do with size of home, and even the area where the home is located. If you have a larger home, and live in a more upscale area, you would most likely get more than the 98% return on your complete kitchen remodel, in my opinion. Buyers of those larger, more expensive homes, expect a beautiful updated kitchen. And they are usually willing to pay extra for it.

Naturally, the remodel has to be functional as well as beautiful. Installing a small range in a large chef’s kitchen won’t make sense. Likewise, you would want to install a vent/hood that will definitely do the job over a large six-burner range. And don’t skimp on cupboard and storage space! Making mistakes like this in a remodel can be costly when it comes time to resell.

Nothing is wrong with style or adding personal touches in a kitchen, but it must be functional first! The kitchen is usually the heart of the home, and being functional is key to longevity in your remodel. Trends and styles can come and go, but function and usability are forever.

Transforming a Kitchen Laundry Closet

In Mission Viejo, there are a few floor plans that have the laundry closet in the kitchen area. It is a convenient option, but can be a bit awkward, especially if you opt for a large washer and dryer pair. Removing the closet doors to accommodate the washer and dryer has some cons, though, like having the appliances always in view as well as the noise always within earshot.

But it can also be an opportunity for creative design! I recently helped a colleague list a home for sale, and the seller had transformed the outdated and clunky laundry closet into an attractive and functional focal point.

Transformed Laundry Closet in Kitchen

This owner removed a pair of louvered closet doors, removed the old upper storage cabinets and old lighting soffit. They gave the newly opened space a more cohesive look by adding subway tile, a small shelf and cool lighting. Looks like a natural extension of the kitchen. They still have storage, but now it is located between the appliances. I wouldn’t mind looking at this all day long!

This home is located in the Mallorca neighborhood overlooking Lake Mission Viejo.