Property Sector Calm Amid Coming Forbearance Storm

Today, millions of American homeowners and landlords will face the bill for the lifeline they’ve been provided. The CARES Act loan forbearance and eviction moratoriums will end and the nearly 2 million homeowners who sought relief will exit forbearance as the safety net is removed. With nearly 1.5 million homeowners more than 90 days delinquent, a storm is approaching the country’s residential sector. Commercial lenders and landlords are watching, considering themselves lucky, as commercial delinquencies continue to decrease across all property types and lending hits pre-pandemic levels.

Homeowners were initially allowed to request up to 12 months of forbearance protection. The program was then extended a few times. About 3.5 percent of the nation’s 53 million federally-backed mortgage holders are in forbearance. In context, that number is hopeful, considering 7.25 million borrowers, about 13 percent, were in forbearance at the height of the pandemic. That’s creating what experts call a K-shaped recovery, where the majority of homeowners rebound upper while the rest continue further into the hole. At this point, homeowners still in forbearance likely haven’t been able to make payments for a very long time, piling on debt. The end of forbearance protections and continued economic recovery have Zillow predicting approximately 850,000 borrowers will exit forbearance by October 2021. Low-income borrowers, who are most likely to use federally backed mortgage programs, will be particularly hard hit. Atlanta, Houston, Chicago, and Dallas have the highest number of those types of borrowers, making their housing markets more vulnerable to supply shocks when a large number of those homes hit the market. About a third of homeowners aren’t eligible for forbearance because they don’t have mortgages backed by the Department of Housing and Urban Development, the Department of Veterans Affairs, the Agriculture Department, or the Federal Housing Finance Agency.

A significant portion will choose to sell to benefit from record home price appreciation, increasing housing inventory levels across the country, adding about .40 months housing supply. If homeowners are more distressed than previous owners existing forbearance, supply could increase as much as .80 months. Strong economic activity and a seller’s market have kept demand for homes high, keeping the housing market healthy. That’s prevented waves of involuntary foreclosures like we saw in the wake of the 2008 Financial Crisis. Keeping the residential housing market healthy is crucial to protecting homeowners who have been hit hard by the pandemic downturn because without a healthy housing market homeowners don’t have an escape hatch in the form of listing. Financial pain is serious for thousands of Americans, but keeping the housing and financial sector above water with federal and state dollars has saved most homeowners from financial collapse.

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