Why the 2021 Forecast Doesn’t Call for a Foreclosure Crisis
Nikki Spirakis • November 6, 2020
As the current forbearance mortgage relief options come to an end, many are wondering if we’ll face a foreclosure crisis next year. This is understandable, especially for those who remember the housing crisis that began in 2008. The reality is, plans have been put in place through forbearance to ensure history doesn’t repeat itself.
This year, homeowners are able to request 180 days of mortgage relief through forbearance. Upon expiration of that timeframe, they’re also entitled to request 180 additional days, bringing the total to 360 days of deferred payment eligibility. As forbearance expires, homeowners should stay in touch with their lender, because creating a plan for the deferred payments is a critical next step to avoiding foreclosure. There are multiple options for homeowners to pursue at this point, and with the right planning and communication with the lender, foreclosure doesn’t have to be one of them.
Many homeowners are concerned that they’ll have to pay the deferred payments back in a lump sum payment at the end of forbearance. Thankfully, that’s not the case. Fannie Mae explains:
“You don’t have to repay the forbearance amount all at once upon completion of your forbearance plan…Here’s the important thing to remember: If you receive a forbearance plan, you will have options when it comes to repaying the missed amount. You don’t have to pay the forbearance amount at once unless you are able to do so.”
When looking at the percentage of people in forbearance, we can also see that this number has been decreasing steadily throughout the year. Fewer people than initially expected are still in forbearance, so the number of homeowners who will need to work out alternative payment options is declining (See graph below):
This means there are fewer and fewer homeowners at risk of foreclosure, and many who initially applied for forbearance didn’t end up needing it. Mike Fratantoni, Senior Vice President and Chief Economist at the Mortgage Bankers Association (MBA), explains:
“Nearly two-thirds of borrowers who exited forbearance remained current on their payments, repaid their forborne payments, or moved into a payment deferral plan. All of these borrowers have been able to resume – or continue – their pre-pandemic monthly payments.”
For those who are still in forbearance and unable to make their payments, foreclosure isn’t the only option left. In their Homeowner Equity Insights Report, CoreLogic indicates:
“In the second quarter of 2020, the average homeowner gained approximately $9,800 in equity during the past year.”
Many homeowners have enough equity in their homes today to be able to sell their houses instead of foreclosing. Selling and protecting the overall financial investment may be a very solid option for many homeowners. As Ivy Zelman, Founder of Zelman & Associates, mentioned in a recent podcast:
“The likelihood of us having a foreclosure crisis again is about zero percent.”
If you’re currently in forbearance or think you should be because you’re concerned about being able to make your mortgage payments, reach out to your lender to discuss your options and next steps. Having a trusted and knowledgeable professional on your side to guide you is essential in this process and might be the driving factor that helps you stay in your home.
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If rising home prices leave you wondering if it makes more sense to rent or buy a home in today’s housing market, consider this. It’s not just home prices that have risen in recent years – rental prices have skyrocketed as well. As a recent article from realtor.com says : “The median rent across the 50 largest US metropolitan areas reached $1,876 in June, a new record level for Realtor.com data for the 16th consecutive month.”That means rising prices will likely impact your housing plans either way. But there are a few key differences that could make buying a home a more worthwhile option for you. If You Need More Space, Buying a Home May Be More Affordable What you may not realize is that, according to the latest data from realtor.com and the National Association of Realtors (NAR), it may actually be more affordable to buy than rent depending on how many bedrooms you need. The graph below uses the median rental payment and median mortgage payment across the country to show why.
Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. This year he released a new paper on homeownership - The Dream Lives On: the Future of Homeownership in America . In his paper, Belsky reveals five financial reasons people should consider buying a home. Here are the five reasons, each followed by an excerpt from the study: 1.) Housing is typically the one leveraged investment available. “Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.” 2.) You're paying for housing whether you own or rent. “Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.” 3.) Owning is usually a form of “forced savings”. “Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.” 4.) There are substantial tax benefits to owning. “Homeowners are able to deduct mortgage interest and property taxes from income...On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.” 5.) Owning is a hedge against inflation. “Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.” Bottom Line We realize that homeownership makes sense for many Americans for many social and family reasons. It also makes sense financially.
Some Highlights Based on a recent Gallup poll , real estate has been rated the best long-term investment for nine years in a row. Owning real estate is more than just a place to call home. It’s also an investment in your future. That’s because it’s typically a stable and secure asset that can grow in value over time. If you’re ready to buy a home and invest in your future, let’s connect.
Defining the American dream is personal, and no one individual will have the same definition as another. But the feelings it brings about – success, freedom, and a sense of prosperity – are universal. That’s why, for many people, homeownership remains a key part of the American dream . Your home is your stake in the community, a strong financial investment, and an achievement to be proud of. A recent survey from Bankrate asked respondents to rank achievements as indicators of financial success, and the responses prove that owning a home is still important to so many Americans today (see graph below):
Some Highlights It’s worth considering the many benefits of homeownership before you make the decision to rent or buy a home. When you buy, you can stabilize your housing costs, own a tangible asset , and grow your net worth as you gain equity . When you rent, you face rising housing costs , won’t see a return on your investment, and limit your ability to save. If you want to learn more about the benefits of homeownership, let’s connect today.
While the Federal Reserve is working hard to bring down inflation, the latest data shows the inflation rate is still going up. You no doubt are feeling the pinch on your wallet at the gas pump or the grocery store, but that news may also leave you wondering: should I still buy a home right now? Greg McBride, Chief Financial Analyst at Bankrate, explains how inflation is affecting the housing market: “Inflation will have a strong influence on where mortgage rates go in the months ahead. . . . Whenever inflation finally starts to ease, so will mortgage rates — but even then, home prices are still subject to demand and very tight supply.” No one knows how long it’ll take to bring down inflation , and that means the future trajectory of mortgage rates is also unclear. While that uncertainty isn’t comfortable, here’s why both inflation and mortgage rates are important for you and your homeownership plans. When you buy a home, the mortgage rate and the price of the home matter. Higher mortgage rates impact how much you’ll pay for your monthly mortgage payment – and that directly affects how much you can comfortably afford. And while there’s no denying it’s more expensive to buy and finance a home this year than it was last year, it doesn’t mean you should pause your search. Here’s why. Homeownership Is Historically a Great Hedge Against Inflation In an inflationary economy, prices rise across the board. Historically, homeownership is a great hedge against those rising costs because you can lock in what’s likely your largest monthly payment (your mortgage) for the duration of your loan. That helps stabilize some of your monthly expenses. Not to mention, as home prices continue to appreciate, your home’s value will too. That’s why Mark Cussen, Financial Writer at Investopedia, says : “Real estate is one of the time-honored inflation hedges. It's a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values.” Also, no one is calling for homes to lose value. As Selma Hepp, Deputy Chief Economist at CoreLogic, says : “The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.” In a nutshell, your home search doesn’t have to go on hold because of rising inflation or higher mortgage rates. There’s more to consider when it comes to why you want to buy a home. In addition to shielding yourself from the impact of inflation and growing your wealth through ongoing price appreciation, there are other reasons to buy a home right now like addressing your changing needs and so much more. Bottom Line Homeownership is one of the best decisions you can make in an inflationary economy. You get the benefit of the added security of owning your home in a time when experts are forecasting prices to continue to rise.
Over the last two years, the rate of home prices appreciated at a dramatic pace. While that led to incredible equity gains for homeowners, it’s also caused some buyers to wonder if home prices will fall. It’s important to know the housing market isn’t a bubble about to burst, and home price growth is supported by strong market fundamentals. To understand why price declines are unlikely, it’s important to explore what caused home prices to rise so much recently, and where experts say home prices are headed. Here’s what you need to know. Home Prices Rose Significantly in Recent Years The graph below uses the latest data from CoreLogic to illustrate the rise in home prices over the past year and a half. The gray bars represent the dramatic increase in the rate of home price appreciation in 2021. The blue bars show home prices are still rising in 2022, but not as quickly: You might be asking: why did home prices climb so much last year? It’s because there were more buyers than there were homes for sale. That imbalance put upward pressure on home prices because demand was extremely high, and supply was record low. Where Experts Say Prices Will Go from Here While housing inventory is increasing and buyer demand is softening today, there’s still a shortage of homes available for sale. That’s why the market is seeing ongoing price appreciation. Mark Fleming, Chief Economist at First American, explains it like this: “. . .we’re still well below normal levels of inventory and that’s why even with the pullback in demand, we still see house prices appreciating. While there is more inventory, it’s still not enough.” As a result, experts are projecting a more moderate rate of home price appreciation this year, which means home prices will continue rising, but at a slower pace. That doesn’t mean prices are going to fall. As Selma Hepp, Deputy Chief Economist at CoreLogic, says : “The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.” In other words, even with higher mortgage rates, moderating buyer demand, and more homes for sale , experts say home price appreciation will slow, but prices won't decline. If you’re planning to buy a home, that means you shouldn’t wait for home prices to drop to make your purchase. Instead, buying today means you can get ahead of future price increases, and benefit from the rise in prices in the form of home equity . Bottom Line Home prices skyrocketed in recent years because there was more demand than supply. As the market shifts, experts aren’t forecasting a drop in prices, just a slowdown in the rate of price growth. To understand what’s happening with home prices in our area, let’s connect today.
Mortgage rates are much higher today than they were at the beginning of the year, and that’s had a clear impact on the housing market . As a result, the market is seeing a shift back toward the range of pre-pandemic levels for buyer demand and home sales. But the transition back toward pre-pandemic levels isn’t a bad thing. In fact, the years leading up to the pandemic were some of the best the housing market has seen. That’s why, as the market undergoes this shift, it’s important to compare today not to the abnormal pandemic years, but to the most recent normal years to show how the current housing market is still strong. Higher Mortgage Rates Are Moderating the Housing Market The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s also a good indication of buyer demand over time. Here’s a look at their data going back to 2017 (see graph below): Here’s a breakdown of the story this data tells: The 2017 through early 2020 numbers (shown in gray) give a good baseline of pre-pandemic demand. The steady up and down trends seen in each of these years show typical seasonality in the market. The blue on the graph represents the pandemic years. The height of those blue bars indicates home showings skyrocketed during the pandemic. The most recent data (shown in green), indicates buyer demand is moderating back toward more pre-pandemic levels. This shows that buyer demand is coming down from levels seen over the past two years, and the frenzy in real estate is easing because of higher mortgage rates. For you, that means buying your next home should be less challenging than it would’ve been during the pandemic because there is more inventory available. Higher Mortgage Rates Slow the Once Frenzied Pace of Home Sales As mortgage rates started to rise this year, other shifts began to occur too. One additional example is the slowing pace of home sales. Using data from the National Association of Realtors (NAR), here’s a look at existing home sales going all the way back to 2017. Much like the previous graph, a similar trend emerges (see graph below): Again, the data paints a picture of the shift: The pre-pandemic years (shown in gray) establish a baseline of the number of existing home sales in more typical years. The pandemic years (shown in blue) exceeded the level of sales seen in previous years. That’s largely because low mortgage rates during that time spurred buyer demand and home sales to new heights. This year (shown in green), the market is feeling the impact of higher mortgage rates and that’s moderating buyer demand (and by extension home sales). That’s why the expectation for home sales this year is closer to what the market saw in 2018-2019. Why Is All of This Good News for You? Both of those factors have opened up a window of opportunity for homeowners looking to move and for buyers looking to purchase a home. As demand moderates and the pace of home sales slows, housing inventory is able to grow – and that gives you more options for your home search. So don’t let the headlines about the market cooling or moderating scare you. The housing market is still strong; it’s just easing off from the unsustainable frenzy it saw during the height of the pandemic – and that’s a good thing. It opens up new opportunities for you to find a home that meets your needs. Bottom Line The housing market is undergoing a shift because of higher mortgage rates, but the market is still strong. If you’ve been looking to buy a home over the last couple of years and it felt impossible to do, now may be your opportunity. Buying a home right now isn’t easy, but there is more opportunity for those who are looking.
