Tuesday, January 26, 2021 / by Vanessa Saunders
By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
Considering the number of people we’ve encountered recently who are speculating on where the real estate market will go in 2021, it probably should be designated an Olympic sport. One thing’s for sure. The financial pressures we are experiencing today are felt by not just homeowners, investors but lenders as well.
The last time this happened was 2007, when the market crashed and many homeowners were “under water” with mortgages carrying negative equities. For those predicting the market these days, now may look like another 2007, but this time, it’s different. Real estate still remains strong. Property values have gone up and seem to keep rising, and there are many fewer properties with negative equity.
Still, many Americans have lost jobs, and subsequently lost their ability to keep current on their debts: consumer debt, car loans, school loans, etc. as well as mortgages. They have been living off credit cards and/or have burned through their savings. Today, almost three million households are actively in a forbearance plan. If they received a forbearance on their mortgage, some may even still be considered “current.” But those forbearance programs must end sometime. With millions of Americans unemployed, we may see distressed properties (foreclosures and short sales) affect the housing market once again.
Or will we?
Foreclosure happens in two steps. First, the homeowner has some kind of economic shock - loss of a job, the death of an earning spouse etc. This causes the homeowner to become delinquent on their mortgage. However, delinquency by itself is not enough to send a mortgage into foreclosure. With enough equity, a homeowner has the option of selling their home, or tapping into their equity through a refinance, to help weather the economic shock. It’s when there is a lack of equity that the second component of the dual trigger turns a serious delinquency into a foreclosure situation.
But with a greater cushion of home equity, troubled homeowners have many more options: a greater ability to access funding (e.g. home equity lines) to keep paying monthly expenses until family finances might recover, improved ability to get a loan modification, and, if necessary, the ability to sell their home and move to a smaller home with a more affordable monthly payment, or rent.
So what does this mean for the 2021 housing market? There will still be a lack of homes for sale (inventory) on the market. The market has the potential to absorb half a million homes this year without it causing home values to depreciate. Combine that with homeowners exercising their options to avoid foreclosure, it’s hard to believe the market will be significantly impacted.
The pandemic has caused significant financial damage to many Americans. But with a new administration in Washington and vaccines on the way, there is plenty of reason to remain positive.