Is Now a Good Time to Buy Real Estate? What About a Foreclosure Crisis?

After the 2008 financial crisis, nearly 9 million homes went into foreclosure. The COVID-19 pandemic draws a lot of parallels to 2008, which is why a lot of people believe another foreclosure crisis is coming in 2021 or 2022.

Although many people were expecting a housing market collapse in 2020, the opposite happened. Interest rates fell to all time lows, and home prices started rising. The banks also stepped in and allowed homeowners to do a forbearance. A forbearance is when the bank allows you to put your mortgage payments on pause or reduce your monthly payment.

According to Black Night, about 7.2 million homeowners have taken advantage of the forbearance program since the start of the pandemic. About 1.74 million of those homeowners are still in forbearance as of August, 2021. Fortunately, due to massive appreciation happening nationwide, many of these homeowners have enough equity to sell their homes at a profit.

Here’s a breakdown of what’s happening with the homeowners still in forbearance:

  • 87% have at least 10% equity. This is plenty of money for someone to sell, pay off their mortgage in full and also make a little profit.
  • 13% don’t have enough equity to sell, pay off the mortgage and make a profit. This equates to about 221,000 homeowners, many of whom will work out some sort of payment plan with their lenders.

On the flip side, about 5.2 million homeowners have exited the forbearance program as of June 2021. The vast majority, about 90%, of those who have exited the program are either current and paying on time or have paid off their loan balance in full.

Here’s a breakdown of what’s happening with the homeowners who have exited forbearance:

  • 3.4 million, or 65%, are current and paying on time.
  • 1.3 million, or 25%, paid off their mortgage through a refinance or the sale of a home.
  • 333,000, or 6%, are delinquent and working with the workout department of their bank to come up with a solution.
  • Only 195,000, or 4%, are delinquent and not working on a solution. These are the individuals that are on the road to becoming either a short sale or foreclosure statistic.

It’s important to understand that, as it stands now, there are only about 416,000 homeowners who are at risk of foreclosure nationwide. This includes the 221,000 homeowners who are still in forbearance without equity and the 195,000 homeowners who exited forbearance and are not coming up with a solution. This number is drastically lower than the 9 million households that experienced foreclosures during the Great Recession.

The point is that, even with the forbearance program coming to an end, we are nowhere near where we were in 2008. This is why I do not believe we will see another foreclosure crisis in the final months of 2021 and into 2022.

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