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We are living in interesting times. When people ask me to predict the residential real estate market, I respond that the market is likely headed for a correction. Now mind you, I do not predict a crash, but I do see prices retreating and a rise in home inventory. The next question I get is ‘why do I think this will happen?’. I see several factors, but here is the biggest one.
Hundreds of thousands of homeowners could soon lose or sell their homes as Covid-related mortgage bailout programs expire. Forbearance did help millions ride out the worst of Covid’s wrath on our economy; however, it will soon be time to pay the piper.
The bailouts allowed borrowers to miss mortgage payments, in fact some people made no payments for as many as 18 months. During that time, some loan servicers also advanced money to borrowers for paying taxes and insurance. Now those monies are due back to the servicer, and while that repayment can be spread over a year, some borrowers won’t be able to afford their monthly payment increase.
“We’re in the midst of the largest transition out of forbearance we’re likely to ever see, with three-quarters of a million homeowners leaving plans over the past 60 days,” said Andy Walden, vice president of market research for Black Knight.
Over half of the 7.7 million borrowers who piled into bailout programs are current on their mortgages and making payments again, according to weekly data from Black Knight, a mortgage software, data and analytics company. About 23 percent of borrowers either sold their homes or refinanced their mortgages to make them more affordable. That the good news.
The slightly worse news is that roughly 7 percent, or just over half a million, are in active loss mitigation with their lenders, still trying to work out a loan modification plan.
Then we have the hundreds of thousands of homeowners who remain in a tougher spot.
Three percent of borrowers, or approximately 264,000 homeowners, are now delinquent on mortgages after their programs expired, and 38,000 are in active foreclosure.
“What I’m seeing right now is people nervous. A lot of them coming off forbearances, some of them still not working and not knowing what to do. I try to instruct them to first contact the servicer or the lender and find out what their options are,” said Margherita Diaz, a Housing and Urban Development Department-certified counselor at Putnam County Housing Corporation.
There are not a lot of options for borrowers who lost too much income or outright lost their businesses during the pandemic. Servicers have been offering loan modifications and lower interest rates, but some borrowers simply can’t pay.
There is a possible way out – selling. With U.S. home prices up by almost 20 percent compared to the previous year, borrowers with long-term job loss or a shuttered business may consider selling their property.
Some 87 percent of borrowers currently in foreclosure have positive equity, according to RealtyTrac, a foreclosure database, meaning their property is worth more than their mortgage balance. Homeowners now delinquent but not yet in foreclosure, likely also have significant equity.
In many cases, sellers may offload their homes quickly due to high market demand and walk away with cash. In my mind, this will become the trend within the next six months. It is a way out of the high pressure of not being able to catch up with mortgage payments and it gives people a sense of stability with cash in hand.
In parallel, this will have a snowballing effect because as ‘distressed’ inventory rises, homeowners who had the desire to move without the financial pressure forcing them to do so will put their homes on the market so as to not miss out on their top-dollar sale. And, as we all know, more inventory equals lower prices. So as more homes sell, the prices must come down.
We’ve seen record low inventory for more than a year now; and although my prediction of when this reversal would start was premature, I think the first half of 2022 will prove the prediction correct. In addition to the effect of the end of the ‘great forbearance,’ it appears the Fed’s actions are pointing towards higher interest rates. The lack of cheap money will also necessitate lower housing prices.
For Pinecrest, which has a high percentage of cash transactions, this shift in the market should be muted. $1-million+ homes march to a different rhythm, as the typical homeowner is not working paycheck to paycheck. However, as you work towards lower priced homes, the market should become more and more affected by the post-forbearance changes.
And for those homeowners who do believe the better option is to put their homes on the market and take the cash, will they feel like they can immediately buy again (at a lower price point)? I will hazard to say no, and this will force them into the already red-hot rental market.
Whatever your situation, please feel free to contact me with your specific questions and situation. I am well versed in everything from short sales to multi-million-dollar listings. It is not only about the money, but the people and helping them reach their goals.
Real Estate Update
As of 12/11/21, there were only 69 properties for sale in Pinecrest—26 homes pending sale and 3.6 months of inventory. This is still a Seller’s market, but not forever!
If you’re ready to move, get the best local expertise, truthful guidance and realistic expectations. It’s easy to get started at miamihal.com/getstarted.
I invite you to view past episodes of my The MiamiHal Real Estate Show at miamihal.com/the-miamihal-real-estate-show to hear from experts and get the latest real estate news.
Hal Feldman (MiamiHal) is a Realtor with RE/MAX Advance Realty. You can contact him with your story ideas or real estate questions at www.MiamiHal.com, Hal@MiamiHal.com or www.facebook.com/MiamiHal
