Will the end of the forbearance program cause a wave of foreclosures?

Today I’ll talk about the four reasons why the end of the forbearance program is not going to cause a wave of foreclosures in our market:

1. Fewer households are in trouble. Everyone’s concerned that this is a bubble similar to 2008. During the recession, 9.3 million households gave their homes back to the bank through foreclosure or short sale. Comparatively, when the stay-at-home orders began, it was predicted that as many as 30% of homeowners would enter the forbearance program, but only 8.5% did, and that number has since decreased to 3.5%.

2. Homeowners have significantly more equity in their homes. This is because we don’t have 100% financing options like before the recession. 87% of those who took advantage of the forbearance program have at least 10% equity in their home. That means they could still sell their home and absorb the cost before they would have to consider giving it back to the bank. There absolutely will be foreclosures this year, just like every year. However, numbers indicate that this year will be very consistent with the number of foreclosures we’ve seen over each of the last three years.

“The end of the forbearance program is not going to cause a wave of foreclosures.”

3. Low inventory. During the recession, there was a nine-month supply of inventory so whenever someone tried to put their home on the market, there was virtually no chance of it selling. Right now, there’s a national three-month supply of inventory, and in the metroplex, there’s only a three-week supply of inventory. Any home that comes on the market will be quickly purchased by buyers willing to pay top dollar. We don’t have to worry about absorbing the inventory that might come on the market due to owner financial distress.

4. Those in power want to avoid a wave of foreclosures. One of the biggest benefits to homeowners who’ve had to take advantage of this forbearance program is that they can resume paying their payments at pre-pandemic levels and then pay the missed payments as a lump sum at the end of the mortgage.

The bottom line: The end of the forbearance program is not going to cause a wave of foreclosures. If you have any questions about this market or the value of your home, please don’t hesitate to reach out to me.