Why a Wave of Home Foreclosures Is Not on the Way Now

Home Foreclosures Update:

Will we see more home foreclosures in Metro Detroit MI this year?

With forbearance plans coming to an end, many are concerned the housing market will experience a wave of foreclosures. Furthermore, if you’re worried about a similar time when the housing bubble burst 15 years ago. Here are a few reasons why that won’t happen.

There are fewer homeowners in trouble this time.

After the last housing crash, about 9.3 million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank.

As stay-at-home orders were issued early last year, the fear was the pandemic would similarly impact the housing industry. Many projected up to 30% of all mortgage holders would enter the forbearance program, and in reality, only 8.5% actually did, and that number is now down to 2.2%.

As of last Friday, the total number of mortgages still in forbearance stood at 1,221,000. That’s far fewer than the 9.3 million households that lost their homes just over a decade ago.

Most of the mortgages in forbearance have enough equity to sell their homes.

Due to rapidly rising home prices over the last two years, of the 1.22 million homeowners currently in forbearance, 93% have at least 10% equity in their homes. This 10% equity is significant because it enables homeowners to sell their homes and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.

The remaining 7% might not have the option to sell, but if the entire 7% of those 1.22 million homes went into foreclosure, that would total about 85,400 mortgages. To give that number context, here are the annual foreclosure numbers for the three years leading up to the pandemic:

• 2017: 314,220
• 2018: 279,040
• 2019: 277,520

The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures that impacted the housing crash 15 years ago. It’s less than one-third of any of the three years before the pandemic.

The current market can absorb Home Foreclosures coming to the market

When foreclosures hit the market back in 2008, there was an oversupply of houses for sale, and it’s exactly the opposite today. In 2008, there was over a nine-month supply of listings on the market, and today, that number is less than a three-month supply Nationally. Our numbers for Macomb and Oakland County average about a 1.6-month supply. Here’s a graph showing the difference between the two markets on theNational level.

Housing Supply Inventory for Metro Detroit 

The market since spring 2020 has experienced a massive problem with not enough homes for sale. Furthermore, causing considerable pain with buyers trying to outbid each other to capitalize on the 50-year low of interest rates. This caused the 3rd problem; home prices jumped month over month. Based on the new appraisal laws, we won’t see homes underwater and homeowners walking away from their homes. They will list and sell their homes and take their money with them. For more details on the local market, visit Know the Market You’re In. 

Bottom Line for Home Foreclosures Update

The data indicates why Ivy Zelman, 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.”

So, if you’re a buyer hoping to see the market flood with homes for sale at a reduced price, it probably won’t happen.  If you’re a seller and you are fearful that the home equity gains will be lost due to the burst of a housing bubble, rest assured you’re ok too. We are in a much better place than we were during the “Crash of 08.”