Will Forbearance Plans Lead to a Tsunami of Foreclosures?

[Christopher J. Roche]

At the onset of the economic disruptions caused by the COVID pandemic, the government quickly put into place forbearance plans to allow homeowners to remain in their homes without making their monthly mortgage payments. Today, almost three million households are actively in a forbearance plan. Though 29.4% of those in forbearance have continued to stay current on their payments, many have not.

Yanling Mayer, Principal Economist at CoreLogic, recently revealed:

“A distributional analysis of forborne loans’ payment status reveals that more than one third (39.1%) of all forborne loans are now 150+ days...

[Dan Maciejewski]

I'm not sure we're looking at a tsunami.  I recently took a look at the numbers and posted this.  If they are off, let me know.

My prediction for our market is that appreciation is going to slow down soon. We (Tampa / St Petersburg / Clearwater / Pinellas) will remain a net population growth market for the foreseeable future so without a glut of inventory, there's nothing that could really cause prices to drop. So while appreciation slows to a normal number (4-ish%), prices wouldn't drop.

As we get rid of buyer's agents (there are a lot of big players trying to force that), the prices will correct for the cost savings for sellers but that's only really a few percent.

The glut of inventory that people think is coming isn't really supported by the numbers. A lot of people think that as forbearance ends, there will be a ton of foreclosures. Those people can never quote the numbers for me. The questions are:

How many houses have loans? (63%)

How many loans are in forbearance? (5.2%) (This report says 5.54%)

How many of those will NOT be able to catch up or start paying their mortgage? (Let’s pretend all of them, but we know that many of them WILL because there are still people buying. Some Americans still have jobs, in fact many do, especially in our market)

How many of THOSE are actually underwater (have no equity)? With the recent historic appreciation, almost none. That article says 7% and it's from before the pandemic price increase.

So, going off those numbers:

139 million houses in America - * 63% = 87 million * 6% in forbearance = 5.25 million * 7% underwater = 368,000 houses foreclosed or short-saled. Or to put in another way, .26% of houses (1/4 of a percent). That's not a glut of houses in my market. Definitely not enough to even change it into a buyer's market. We currently have 1.5 months of inventory.

Even if every loan in forbearance gets foreclosed / short-saled, that's 2% of all houses, so even that's not enough to change prices. Even if mortgage rates go up and half the people buying can't afford to buy, that's enough to shift us into a balanced market, which would stop appreciation but not cause a dramatic drop in prices.

That's just my two cents and it only applies to my market. I know nothing about what, say, Youngstown Ohio looks like as far as jobs, sales, ownership trends, etc. . .