Is A Foreclosure Crisis Coming in 2021?

Is there a foreclosure crisis coming to the housing market in 2021? And how is that going to affect home values in Fayette County?

As we are nearing the end of 2020 and with still millions of homes in mortgage forbearance, it is easy to see why people would be concerned about a foreclosure crisis coming to the housing market in the coming year. Although I do not have a crystal ball, I do have lots of resources, housing experts and facts that I research, so that I can give as much information to my clients as possible. After all, informed buyers and sellers make smarter decisions.

Housing Market in 2020

Before we head back to the mortgages in forbearance and how that translate into foreclosures, let’s see what happened to the general housing market since the beginning of the pandemic.
As you recall, when the country was shut down, the housing market, and pretty much the entire economy went into a free-fall. However, as soon as parts of the country were reopening, like we did here in Georgia, the housing market started coming back. It’s been rising ever since.

So how is that possible? After all, unemployment is higher than it was at the beginning of the year. Let’s start by seeing what people did with their stimulus checks.

As you can see, only 29% used the money to pay bills. 35% used it to pay down debt and 36% saved it. And that is reflected in the average FICO credit scores, which actually went up by 3 points in July.

Homes Are More Important

Since people are spending more time at home, your home becomes more important. If you now use your home as your main office, your kids’ school at least part of the time and your staycation destination, you have a lot more requirements for your home. So people start looking for the home that meets all those requirements.

Homes that have room for a home office. Homes that have space for a school room. Homes that have a pool. Homes that have a media room. Add that to all time low interest rates and the normal spring market demand that moved to the summer and it is easy to see why the housing market took off.

Home values increased quite a bit over the last year. In fact I helped clients sell a house they only bought 2 years ago and their home value increased by 25%. That is a huge gain in such a short time.

Home Value Forecasts

All major housing forecaster had to adjust their forecasts. Where they forecasted doom and gloom only 6 months ago, they are now forecasting increases in hone values. Zillow had forecasted a 3% drop in home values and now are forecasting a 7% increase. That is a swing of 10%. Of the major forecasters, only Zelman and Associates had to adjust their forecasts by less than 2%.
However, there are not enough homes on the market to meet that demand. As Mark Fleming, the Chief Economist of First American says,

“In the game of housing musical chairs, it is clear the housing market needs more chairs.”

Here in Fayette County, we have had between 400-500 homes on the market in the past few years. And as you may know the last few years have been a robust sellers market. That means there are more buyers than sellers. However, in the last few months, we have had fewer than 250 homes on the market. Homes are flying off the market and the average days on market for homes sold over the last 6 months is only 38 days.

Foreclosure Crisis and Forbearance

How does this translate to the possible foreclosure crisis and what happened when forbearance ran out in September?

Of the 5,829,000 families in forbearance when the plan ran out, 41% either paid of their mortgage or were current on their mortgage. For another 2.8 million, forbearance was extended. Many banks made it super easy to just extend forbearance. It does not mean that all of these people are in default or behind on their mortgage.

For 267,000 families, forbearance expired and they are in loss mitigation. This means that they are either making extra payments, or are tacking those payments on at the end of their loan. 54,000 families are currently delinquent.

Equity

Of course it is terrible for the people who are struggling to pay their mortgage. However they have options. Unlike the crisis in 2008, where the majority of home owners were upside down and owed more than their homes were worth, today’s home owners have an average of $177,000 in equity.

Home prices are still going up, and homes are selling fast. Banks are not looking to add a lot of houses to their portfolios. If a home owners is in trouble, they have plenty of time to sell their house, pay off their mortgage and still have a good amount of money leftover.

Home owners have options. And as Ivy Zelman says,

The likelihood of us having a foreclosure crisis again is about zero percent.

If you are waiting to buy a new house until the prices drop in a foreclosure crisis, it doesn’t look like it is going to happen anytime soon. Buy it now while the interest rates are low, because home prices are projected to continue to rise.

Click here to start your home search. Whether you are looking for a home with a pool, or home on a lake or a home with a basement, I have got you covered!