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.

Look Before You Leap – Usually

home-inspectionIn the current seller’s market in Orange County, a buyer may be tempted to write an offer before they actually preview it. I do not recommend you do this! You may be tempted to do so since competition is so fierce, and other buyers are making offers subject to inspection. If you do decide to do this, keep a couple things in mind…

Homes are usually not perfect. They may need new appliances, a new roof, have water damage or need some termite work done. These are not low-cost items. Take the age of the home into consideration and the likelihood it may have these types of issues before writing an offer sight unseen. If the home is a distress sale (bank-owned or a short sale) then it is more likely to have issues. The owner may not have had the wherewithal to maintain the home if they are behind in their payments. Sometimes a seller may fix a few things or provide a buyer with a credit after a home inspection discloses issues. But with a distress sale, this may not be an option. Sometimes a seller may not be in a position to fix things nor will they be motivated to provide a credit, especially if other buyers are waiting in line to buy it if you back out.

Sometimes a seller’s agent will not even consider an offer from a buyer who has not even seen the home. They know there is a higher likelihood of this type of buyer backing out or causing issues in escrow due to the risks being taken.

If you are confident of the home’s condition and are familiar with the floor plan and neighborhood, and have some extra cash to make repairs and are motivated enough to take a risk, then it might be the right move for you….especially in this crazy seller’s market.

Values of Condos and Townhomes on the Rise – in a Big Way – in South OC

Orange County CondoIf you currently own a condo or townhome or an attached home valued at under $500,000, your home value is on the rise. Buyers are out there in DROVES, clamoring for a South Orange County home in this price range. Every condo or townhome receives multiple offers in Orange County. They are on the market for just a few days, receive about five or six offers (or more), and then enter into escrow. This is the case whether a short sale or a regular equity sale. This has been the case for several months now, and this activity is not lessening. It is causing values of these types of homes to rise in a big way.

For every condo that gets 5 or six offers, there are 4 or 5 home buyers out there still in need of a property. The law of supply and demand is putting upward pressure on home prices.

Condos that were selling at $240,000 at the beginning of the year are now selling around $270,000.  Condos that were selling at $315,000 at the beginning of the year are now selling around $340,000.  This is huge.

If you are a buyer, you need to stop waffling and start writing offers. If you are a seller, you can confidently sell and should purchase your upleg home before those prices experience such a rise.

If you own a condo or townhome in South Orange County, I have buyers right now!  Call me today! 949.525.5905.