There is both good news and bad news about ending COVID-inspired forbearance programs.

The Good News

The good news, or you could call it great news, is that the end of COVID-inspired forbearance programs will NOT cause a crash in the housing market.

Some industry experts feared the worst around these forbearance programs.  Some experts anticipated that 10 or even 20 million loans would end up in forbearance.

Instead, the most loans in forbearance were approximately five million and currently, we are looking at 1.7 million loans in forbearance.  Why this huge discrepancy between fears and reality?  Today’s mortgage holders have a much stronger credit positions than mortgage holders had during the previous foreclosure crisis.  Plus, many of today’s mortgage holders did not lose their jobs despite some 17M people losing their jobs at the onslaught of and subsequent to the pandemic.

According to Logan Mohtashami writing for HousingWire, “In retrospect, we can say that forbearance programs have been one of the most successful government-sponsored economic plans ever created to help American homeowners.”

The Bad News

Housing demand continues to forcefully outpace housing supply.  According to the National Association of REALTORS®, housing supply in this country is running at a 4.5M deficit.

Even with a worst-case scenario for the 1.7M homeowners currently in forbearance who may be forced to sell their homes, those 1.7M homes wouldn’t put a dent into that 4.5M housing supply deficit.

On the other hand, there may even be good news for those 1.7M homeowners currently in forbearance who might be forced to sell their homes.  Home prices are at record highs, according to the latest CoreLogic Home Price Index report that just published on September 7.

The national average home price jumped +18% y/y in July 2021, according to CoreLogic.  Assuming homes in forbearance are within either the lowest or the low-mid price tiers, those prices increased +22.1% and +20%, respectively.

Mohtashami writes, “For those mortgage holders still in forbearance programs, there is a significant difference between forced selling when your home is underwater, (when) mortgage rates are higher and (when) there are unfavorable demographics, versus the current situation.”

If homeowners in forbearance do, in fact, have to sell, Mohtashami said, “It is a great time to sell…”

Thanks to HousingWire. 



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