Many feared that the coronavirus pandemic and the measures to stop it would cause the next great real estate crash. However, the opposite happened. The housing market boomed in spite of the pandemic and its economic fallout. Some economists feared that the booming real estate market didn’t mean that a crash wouldn’t happen. These economists, instead, predicted that the market crash was delayed. The good news is that there are many signs on the horizon regarding the economy and the pandemic that indicate the crash won’t happen. One of the best signs that the housing market will only continue to increase is the number of mortgages in forbearance. The team at Peoples Choice Mortgage is here to give you the latest mortgage forbearance numbers and what they mean for the housing market.

The Current State of Mortgage Forbearance Numbers

The current numbers regarding the number of mortgages in forbearance is fantastic. The Mortgage Bankers Association just released their current data, and as of March, only 5.14% of mortgages are in forbearance. In a vacuum, these numbers mean little. However, when you look at numbers for the past few months, you see a fantastic trend. The image next to this section provides the percentage of mortgages in forbearance each month according to the Mortgage Bankers Association. The number of mortgages in forbearance reached a peak in May of 2020 with 8.47%. Thankfully, these numbers have been declining almost every single month. 

What is a Mortgage Forbearance? 

To understand why the data above is so important, it is necessary to know what a mortgage forbearance is. A mortgage forbearance is an agreement that borrowers make with their lenders when they are unable to pay their mortgage payments. There are many different structures for a mortgage forbearance agreement. One structure is that the lender pauses mortgage payments for a set period of time and then all back payments are owed as a lump sum at the end of the forbearance. Another structure is that the borrower pays the same outstanding payments over a longer period established by the lender. Finally, one structure merely takes the payments missed and adds them into the principal of the loan. 

Why are Mortgage Forbearance Numbers Important?

Mortgage forbearance numbers are important to determining the trajectory of the housing market because they might be an indication of potential increases in inventory. To understand this more fully, it is important to understand the reasons behind today’s red hot real estate market. The real estate market operates according to the laws of supply and demand. Today’s rising home prices and values are all because of huge demand and limited supply. When the pandemic hit the United States, the government slashed interest rates to encourage lending. In turn, mortgage rates dropped and continued to drop until they reached historic lows. This has caused a huge demand from home buyers who realize they can buy a new home and lock in low rates. Low mortgage rates mean huge savings in terms of monthly payments and over the life of the home loan. 

The other big factor behind the scorching real estate market is supply. In 2020, the housing market was experiencing record lows in terms of available inventory. These numbers have only gotten worse in 2021. More people than ever are wanting to buy a house with low mortgage rates, but there are not enough homes to fill the demand. As such, housing prices and values have skyrocketed. This is great for existing homeowners who have seen their equity increase dramatically.    

Forbearance numbers are relevant because they are a prediction of supply increases. Not everyone who makes a forbearance agreement with their lenders are able to catch up on their payments. In those instances, lenders might move to foreclose on their homes. This is the basis for fears over an eventual housing market crash. The negative predictions assume that there will be a wave of foreclosures that floods the housing market with new inventory. This in turn will drive home prices down and cause a crash, like we experienced in 2008. 

The forbearance data discussed above paints a much better picture than those associated with negative housing market predictions. In spite of pandemic setbacks, it seems that many who were forced into falling behind on mortgage payments are catching up. This is fantastic news for homeowners. The downward trend in forbearance data means that it is unlikely that a sudden flood of homes will enter the market. Ultimately, this means that the housing market will continue to increase, along with home prices and values. 

Other Factors Impacting Forbearances

There are many factors that impact the data we are currently seeing and the data we will see in future months. First, in order to prevent the type of housing market crash that many predicted, they passed moratoriums on foreclosures and extensions for forbearances. Second, they passed multiple rounds of stimulus to help Americans get caught up on their bills, including their rent and mortgages. The latest round of stimulus, the American Rescue Plan Act, includes support for individuals to pay their rent, as well as direct stimulus checks. Many Americans have received their stimulus checks already. The hope is that these latest measures will help those still in forbearance to catch up on their payments and get out of forbearance. 

Final Thoughts

The data is clear that the economy is improving in many areas, including the housing market. Negative predictions about the direction of real estate in the near future do not seem to connect with the economic data we are seeing. This is great news for homeowners and home buyers. Homeowners can feel confident that the value of their homes will not come crashing down. This is great for home buyers who are afraid of buying a new home right before the market falls out beneath them. At this point, our expectations are for the strong housing market to only grow stronger. If you are one of the many Americans who are considering taking advantage of today’s mortgage rates and buy a home, do not fear. Buy a home with confidence and start building long term wealth today.