Is a New Wave of Foreclosures on the Horizon?

There’s been a ton of buzz lately about the possibility of a new wave of foreclosures. Forbearance plans are coming to an end, and a lot of people are concerned the housing market will experience something similar to what happened after the housing bubble 15 years ago. It’s a valid concern, considering so many of us were impacted by the ‘08 crash. But here are a few reasons why that won’t happen.

First and foremost, there are fewer homeowners in trouble this time. After the ‘08 crash, about 9.3 million people lost their homes- either to a foreclosure, short sale, or they simply gave it back to the bank.

Currently, the total number of mortgages still in forbearance stands at around 1.2 million. So even if all of those homes went into foreclosure- which we don’t expect to happen, that’s still far fewer than the 9 million households that lost their homes just over a decade ago.

Another major reason we don’t expect to see a huge wave of foreclosures is that most of the mortgages currently in forbearance have enough equity in their homes to sell.

As most of you know, home prices have been rising rapidly over the last couple of years. Last year, homes increased in value by almost 12% nationally, and here locally, homes appreciated at around 17%! 

So out of the 1.2  million homeowners currently in forbearance, 93% have at least 10% equity in their homes. So why is that 10% equity important? With that 10% equity, homeowners have the ability to sell their homes and pay the associated costs instead of taking the hit on their credit due to a foreclosure or short sale. So, do the math really quick, that’s about a million homes that can simply be sold rather than face foreclosure.

The remaining 7% might not have the option to sell, but even if the entire 7% went into foreclosure, that would total about 85,000 homes. To give that number context, pre-pandemic foreclosures were:
300,000 in 2017
280,000 in ‘18 and ‘19

And the final reason we don’t expect to see another housing crash is: the current market can absorb those homes coming to the market.

Bottom line, Ivy Zelman, who is the founder of the major housing market analytical firm, Zelman and Associates, was on point when she stated:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

And that’s good news for all of us!