More than 3.3. million U.S. homeowners will be on the hook for delinquent payments when mortgage forbearance ends. While some of those homeowners who are overleveraged or unaware of their options will contribute to a wave of foreclosures, most will be able to work with their lenders to either refinance their mortgage or sell to cash in on rising home values.
The U.S. housing market will likely withstand a wave of foreclosures as investors and first-time homebuyers purchase these homes, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. This analysis was conducted by Redfin Chief Economist Daryl Fairweather.
At the peak of the foreclosure crisis in 2010, the national average loan-to-value ratio was 94%, meaning the average homeowner owed her lender nearly as much (94%) as the value of her home. As a result, many financially stressed homeowners couldn’t even afford to sell their home after paying agent fees of 6% and closing costs, so they often ended up in foreclosure. Currently, the average loan-to-value ratio, among metros that report data, is 70%, meaning that the average homeowner has built 10% additional equity beyond an initial 20% down payment.
Currently, the metro with the highest loan-to-value ratio is Virginia Beach at 86.2%, but that is likely due to the high volume of low-downpayment mortgages for local veterans. But because military employment has been unaffected by the pandemic, just 0.3% of homeowners say they are somewhat likely or very likely to be in foreclosure in the next two months, according to the Census Household Pulse Survey (see the table in Redfin report for data on each metro).
Las Vegas has the highest unemployment rate at 14.8%, but Las Vegas homeowners have plenty of equity with an average loan-to-value ratio of 67.9%. As a result, many Las Vegas homeowners are tapping their home equity and downsizing. New listings are up 6.9% from last year, but for every seller there are buyers moving in, which has kept the housing market strong—home sales are up 9.3% from last year.
Homeowners in forbearance have options to avoid foreclosure
Atlanta has the highest share of homeowners reporting they feel they are very or somewhat likely to face foreclosure in the next two months at 3.8%, and the fourth-highest share of homeowners behind on mortgage payments at 13.5%.
Fannie Mae and Freddie Mac will allow borrowers in forbearance to defer repayment until the time the home is sold or refinanced. With record-low mortgage rates, homeowners behind on payments could theoretically refinance their mortgage debt into monthly payments lower than before the pandemic began. And if a borrower is in severe debt she may still be able to do a short sale or take advantage of cash-for-keys, where borrowers get a one-time payment to vacate their home.
Even if there is a wave of foreclosures, those foreclosed properties will have little impact on the overall housing market because there is a shortage of homes for sale—the total number of homes for sale is at a record low.
To view the full report, including charts and methodology, please visit: https://www.redfin.com/blog/Housing-Market-After-End-of-Forbearance/