At some point, nearly everyone who was in the real estate business in 2008 says, “I wish I bought one/some/many houses when they went on sale from 2009-2011.” Then they go on and say, “Next time, I will be ready.” This sentiment is why prices won’t crash.
- We will buy the houses (demand for the supply).
- We can buy the houses (today’s market is very liquid, wages are up, savings are up, people have more money).
- There is someone to live in the houses (population growth is greater than the housing stock growth).
Forbearance, Delinquencies, and Foreclosures:
In order to recognize why we will not see a market crash; we need to understand the extent of the distressed situation. Lydia Wietsma and I regularly discuss forbearance, delinquencies, foreclosures, equity, and loan servicing. Check out our 30-minute conversation and/or see my notes below for the content.
Forbearance Numbers:
Since 8/23/21, the number of borrowers in forbearance declined by 8.3% which means that about 100,000 borrowers exited their plan. Now about 3% of loans are in forbearance which translates to roughly 1.5 million borrowers.
“The share of loans in forbearance decreased by 8 basis points last week, as forbearance exits remained elevated, and new forbearance requests and re-entries were unchanged. 20% of loans in forbearance are either new forbearance requests or re-entries. At this point, borrowers in forbearance extensions are exiting at a faster rate as they near – or reach – the expiration of their maximum forbearance term.”
-MIKE FRATANTONI, MBA’S SENIOR VICE PRESIDENT AND CHIEF ECONOMIST
Forbearance by Stage:
- 11.3% of total loans in forbearance are in the initial stage, which is a 13% increase over the past month.
- 80.2% are on extension, a 2.6% decrease in a month.
- 8.5% are re-entries, an increase of just over 10% since August 23.
Forbearance Exits from June 1, 2020 through September 12, 2021:
42% of borrowers continued making their payments (21.9%), got caught up upon exiting (12.7%), or paid off the loan with a refinance or sale (7.4%).
The segment to be most concerned for is the one that exited their forbearance plan, still behind on their payments, and without a loss mitigation plan in place. This group increased to 16.4% up nearly 2% from last month.
If forbearance ended today and 16.4% of the 1.5 million borrowers exited their plan at the same time, we are looking at 246,000 borrowers nationwide. Divide that up evenly across all 50 states and we are looking at 4,920 per state. If we had 4,920 new listings hit the market tomorrow, they would all be absorbed quickly.
Equity:
In Greater Phoenix, home values have appreciated by 35% since March 2020. This appreciation rate gives many options to struggling borrowers. The vast majority of borrowers have at least 10% equity in their home, enough to sell through a normal sale.
“In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner. These gains are expected to moderate to around $10,000 to $20,000 over the next year.”
-DR. LAWRENCE YUN, NAR’S CHIEF ECONOMIST
Depending on the extent of the deferment, equity levels may decrease. Borrowers may include escrow shortages in their loss mitigation plans.
Seven percent of 1.5M is 105,000 total borrowers that may not have 10% equity. That breaks down to 2,100 per state.
Delinquencies:
The national delinquency rate declined to 4% in August. This is the lowest it has been since the onset of the pandemic.
Serious delinquencies, those 90 days or more behind, dropped by 108,000 from July to August and is over 1 million fewer than a year ago. There are still about 930,000 more seriously delinquent borrowers than there were in February 2020.
Foreclosures:
Be very mindful of scary foreclosure headlines. I just saw one that stated, “Foreclosures are Up 49%” While that is the truth, it is only because there have been so few. With the expiration of the foreclosure moratorium at the end of July, August brought about 7,100 foreclosure starts. The majority of these foreclosure starts were on properties that had started the foreclosure process right before the moratorium was put in place. It is also 80% below August 2019 foreclosure starts.
For context, from 2017 to 2019, there was an average of about 24,200 foreclosures a month, nationwide.
Jobs:
Greater Phoenix has recovered all of the jobs lost due to the pandemic and now has an unemployment rate of 4.8%. The entire state of Arizona has only 9,600 jobs to make up to reach February 2020 employment numbers. There are 10.9 million job openings nationwide.
Additional Items Discussed:
- Servicing, everyone is asking about when the fire-sale of homes is coming. Drive by inspections for iBuyers have dropped off a cliff. Drive by BPOs are way up.
- iBuyer purchases and slowing appreciation rate. Prices are not declining, they are not appreciating as quickly as they were.
- iBuyer service fees are increasing.
- Corporate buyers purchasing homes to rent. Removing the property from regular inventory. Rental rate increases.
- Stock market shifts based on the news, fears of potential Evergrande, a giant Chinese real estate developer, defaults moved the markets earlier this week.
Final Thoughts:
While we do not know what the future may bring and there are many moving parts that impact housing, it is unlikely that we will have any form of a market crash. We will see prices continue to moderate and the 2022 appreciation rates will look nothing like 2021’s, and that is a good thing.
Copyright 2021 Sarah Perkins
Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.