Don’t Fear Forbearances
Since the beginning of the pandemic we’ve faced a slew of fear mongering headlines about the real estate market. Many predicted that the real estate market would collapse similar to 2008 as homeowners went into foreclosure en masse. Fortunately, this nightmare scenario never materialized. However, this has not stopped these doomsday predictions from being made. As we continue to make our way through the pandemic, a variety of emergency measures expire. At each expiration, headlines appear claiming that this expiration is the nail in the coffin for the real estate market. At the end of September, we are facing another expiration. This time it is the end of the forbearance extension. Those that are waiting for this expiration to finally be the death knell of our real estate bull run will be sorely disappointed. Home buyers and homeowners will continue to reap the benefits of a solid real estate market.
Home Buyers are Feeling Confident
Even though the forbearance extension is ending at the end of the month, home buyers and homeowners are feeling increasingly happy with the state of the market. The data is clear that more people are feeling confident in today’s real estate market. Over the past month consumer sentiment has increased. The number of people thinking it is a good time to buy a house has increased from 28 percent to 32 percent. Conversely, the number of people who think it is a good time to sell has dropped from 75 percent to 73 percent. Overall, more consumers feel it is a good time to sell than buy, but the trends are reversing. This means we could have reached a true tipping point in today’s real estate market. We might be shifting from a strong sellers market to a potential buyers market in the near future.
Forbearance Does Not Mean Foreclosure
Those that still fear a real estate collapse around the corner point to the number of homeowners who still have their mortgage in forbearance. The federal forbearance extension is ending, which puts 400,000 homeowners at risk of going into foreclosure. While this seems like an eye-popping number, the truth is that the overall data is much more positive than you would think. Even though 400,000 homeowners are in forbearance, the numbers are trending in a positive direction. Over the past month, the number of homeowners in forbearance dropped to 3.23 percent. This is positive. It means that more and more homeowners are catching up on missed mortgage payments.
Another piece of good news is that our current market is set up to prevent an increase in foreclosures triggering a spiral of future foreclosures. Part of this has to do with the types of mortgages that the homeowners of today have with their lenders. Even if prices were to dip in the housing market, we would still not be in a position to see a complete crash like we did in 2008. Today’s real estate market is very different from the real estate market we saw in the leadup to 2008. For one, the types of mortgages that have been issued since 2008 and the ones currently being issued are not risky mortgages. Of all the mortgages that have gone into force during the first quarter of 2021, 76 percent of them are traditional mortgages.
The real estate crash of 2008 had a lot to do with the types of mortgages that were common throughout the marketplace. First, there were a ton of variable rate mortgages. This put homeowners in a bind as rates increased. Their mortgage payments would increase while their home values were decreasing. This increased their incentive to shortsell their home.
Second, many of the mortgages provided in the run up to 2008 were what we refer to as NINJA loans. This means that applications could get approved without proving income, job status, or assets. Essentially, many people had mortgages who did not have the financial profile that proves they would be able to keep up with their payments. This is especially true in a world where their mortgage rates would increase over the course of their home loan. Lenders have been a lot more selective and today’s homeowners are in a good position to follow through on their mortgage payments. The large number of homeowners with traditional mortgages means that even if foreclosures increase, it will not spiral out of control.
Homeowner Equity is Through the Roof
The researchers at Black Knight just released a report on their mortgage data for the month of June. According to their numbers, tappable equity has reached an all-time high of $9.1 trillion. This is one of the main reasons why all experts are not on board with the idea that we will experience a real estate collapse anytime in the near future. Homeowners have too much equity for there to be a real estate market collapse.
The amount of equity homeowners have is one of the big differences between today and the real estate market leading up to 2008. The reason why the collapse of 2008 was so bad was because as home values dropped, many homeowners were suddenly underwater with their mortgages. Simply, they owed more on their mortgage than their homes were worth. This led many homeowners to decide and shortsell their homes. In turn, home prices fell further as the number of homes on the market increased greatly. Today’s homeowners are flush with equity, which means that even if home prices drop, most will not be underwater. That means that there will not be a future wave of shortsells, which would cause home prices to spiral downward.
Final Thoughts
The bottom line is that media outlets are businesses. They get paid for the number of people who click their links, read their papers, or watch their news segments. Sensationalist headlines that promote doom and gloom are designed to get attention. Overdramatic stories that predicted the collapse of the real estate market due to the pandemic were wrong. Same is true about negative stories regarding the expiration of the forbearance extension.
Home buyers and homeowners should feel confident in the values of their homes and in any future home purchases. Home prices are stable and demand is still sky-high because of near historic low mortgage rates. If you have been thinking about buying a house, do not get scared off by the potential of a market collapse. Today’s market is nothing like 2008. There is no indication that a collapse is imminent. Home buyers should feel confident that buying a house today is a good investment for tomorrow.
If you have been thinking of buying a house and want help financing a home loan, contact us. The professional mortgage brokers at Peoples Choice Mortgage will walk you through all of your options and help you find a mortgage that is right for you. Finding a home loan that is tailored to your financial situation is the best way to buy a house with confidence, secure in the knowledge it is well within your means.
