Summary: In this article, learn if there’s going to be a foreclosure crisis in the coming months and if now is still a good time to buy real estate if there is.
Many people who have been paying attention to real estate recently are asking a few questions:
Will we see home prices crash due to foreclosures and forbearances?
And is now a good time to buy real estate?
To answer these questions, we need to understand what’s happened with the forbearance program since its launch in July 2020 and what the government is doing to continue avoiding foreclosures as we move into 2022.
WILL THERE BE A FORECLOSURE CRISIS IN 2021, AND INTO 2022?
After the 2008 financial crisis, nearly 9 million homes went into foreclosure. The COVID-19 pandemic draws a lot of parallels to 2008, which is why a lot of people believe another foreclosure crisis is coming in 2021 or 2022.
Although many people were expecting a housing market collapse in 2020, the opposite happened. Interest rates fell to all time lows, and home prices started rising. The banks also stepped in and allowed homeowners to do a forbearance. A forbearance is when the bank allows you to put your mortgage payments on pause or reduce your monthly payment.
According to Black Night, about 7.2 million homeowners have taken advantage of the forbearance program since the start of the pandemic. About 1.74 million of those homeowners are still in forbearance as of August, 2021. Fortunately, due to massive appreciation happening nationwide, many of these homeowners have enough equity to sell their homes at a profit.
Here’s a breakdown of what’s happening with the homeowners still in forbearance:
- 87% have at least 10% equity. This is plenty of money for someone to sell, pay off their mortgage in full and also make a little profit.
- 13% don’t have enough equity to sell, pay off the mortgage and make a profit. This equates to about 221,000 homeowners, many of whom will work out some sort of payment plan with their lenders.
On the flip side, about 5.2 million homeowners have exited the forbearance program as of June 2021. The vast majority, about 90%, of those who have exited the program are either current and paying on time or have paid off their loan balance in full.
Here’s a breakdown of what’s happening with the homeowners who have exited forbearance:
- 3.4 million, or 65%, are current and paying on time.
- 1.3 million, or 25%, paid off their mortgage through a refinance or the sale of a home.
- 333,000, or 6%, are delinquent and working with the workout department of their bank to come up with a solution.
- Only 195,000, or 4%, are delinquent and not working on a solution. These are the individuals that are on the road to becoming either a short sale or foreclosure statistic.
It’s important to understand that, as it stands now, there are only about 416,000 homeowners who are at risk of foreclosure nationwide. This includes the 221,000 homeowners who are still in forbearance without equity and the 195,000 homeowners who exited forbearance and are not coming up with a solution. This number is drastically lower than the 9 million households that experienced foreclosures during the Great Recession.
The point is that, even with the forbearance program coming to an end, we are nowhere near where we were in 2008. This is why I do not believe we will see another foreclosure crisis in the final months of 2021 and into 2022.
WILL LOAN FORBEARANCES BE EXTENDED ANOTHER 12-MONTHS, INTO 2022?
The fact that our government is trying to avoid a foreclosure crisis could mean that they keep allowing homeowners to extend their forbearance now and into 2022. As emergency protections for homeowners come to an end in 2021, there will be numerous people that still need financial help. And if the current job market doesn’t improve, more and more homeowners will struggle to pay their mortgage as we move into next year.
While so far there has been no mention of forbearance extension past July 31, 2021, the Consumer Financial Protection Bureau has added a new rule to Regulation X which will assist mortgage borrowers affected by the COVID-19 emergency. This new rule went into effect on August 31, 2021 and will extend through January 1, 2022.
The amendment will require mortgage lenders to follow three steps before starting a foreclosure:
- The servicer of the loan needs to review a loss mitigation application, which can be submitted by any borrower through December 31, 2021. This application will show the borrower’s financial and household information, helping the lender understand how the borrower is still experiencing a COVID-19 related financial hardship.
- The servicer of the loan must verify that the home has been abandoned before they can initiate a foreclosure. They must follow both state and local laws to do so.
- The servicer of the loan must make “diligent effort” to get in touch with the homeowner before moving forward with a foreclosure. However, foreclosures will still be allowed if the homeowner is at least four months behind on payments and if they can’t be reached to come up with a plan for more than 90 days.
6 REASONS WHY NOW IS STILL A GOOD TIME TO BUY REAL ESTATE
While it doesn’t appear like there will be a massive foreclosure crisis in the coming months, many people are still wary about investing in real estate today. I’m here to urge you to reconsider. Real estate is still one of the very best investments for 2021, 2022 and beyond. Here are the top six reasons why:
REASON #1: INTEREST RATES ARE AT HISTORIC LOWS.
Right now, mortgage interest rates are anywhere from 3.5%-4.5% for investors. These rates are historically low, which allows buyers to purchase investment property with low monthly payments.
REASON #2: YOU CAN STILL GET TAX BENEFITS.
If you need tax deductions and write offs, having some rental income properties could lower your tax liability. Talk with your tax account for more information.
REASON #3: RETURNS ON INVESTMENT PROPERTIES ARE STILL GOOD.
In addition to having low monthly payments due to low interest rates, there are also many areas around the country where you can buy single and multi family investment properties that offer cash flow. Become a member of RealWealth to view sample property pro formas in real estate markets across the country.
REASON #4: APPRECIATION IS STILL POSSIBLE.
Home values across the nation are rising, and in some areas very rapidly. The median home price in America right now is $374,000. In some markets and neighborhoods it’s possible to find homes below market value, which provides even more room for appreciation.
REASON #5: REAL ESTATE OFFERS A GREAT HEDGE AGAINST INFLATION.
Right now, inflation is around 5% or higher. If you are making an 8% return on your money with a rental property, you are beating inflation and not losing money that could be just sitting in the bank.
REASON #6: PEOPLE STILL NEED A PLACE TO LIVE.
Everyone needs a place to rest their head, and owning rental property provides that for the tenant. No matter how bad the economy gets, there will always be a market for people looking to rent a single family home or apartment. This is what makes real estate one of the best investment opportunities, and today is no exception.
To sum things up, now is still a great time to buy real estate for many reasons. If you plan on waiting to see what will happen in the housing market or with foreclosures, you may be waiting for a very long time. And you may never buy a property because of this.
My advice to you: if you are satisfied with the projected returns on an investment property you’re considering buying, move forward today. Like Robert Allen once said, “Don’t wait to buy real estate. Buy real estate and then wait.”