THE DAM MAY BE ABOUT TO BREAK… or not???
I have always been fascinated by our local real estate market. Its highs and lows, twists and turns that are sometimes unpredictable and other times, perfectly aligned with what’s happening throughout the country. This time is no different. Almost every city in the United States is experiencing the same lack of homes for sale. However, we never know what’s about to burst through the dam.
Could it be that once the pandemic is behind us that sellers will feel more comfortable putting their homes on the market? We can certainly hope so. Some days I would say “YES - I’m seeing more homes for sale”, and yet other days I see a home receive 45 offers and think “there aren’t enough homes to go around to get us back to a neutral market!”
While demand remains extremely high right now, there are a few things that could have an impact on the market in the months and years ahead. That ever-popular term ‘inflation’, which brings higher interest rates, could have a definite impact as home prices have risen but in many cases wages haven’t. As the cost of money goes up, buyers may be priced out of our market.
HOMES IN FOREBEARANCE
There’s also rumbling talk about there being homes in forbearance that could end up eventually going into foreclosure, which seems impossible to me given the recent increase in values -- but I suppose if homeowners have lost their jobs and cannot catch up when the time comes for the forbearance period to end, what choice do they have?
According to the Consumer Financial Protection Bureau, as of January 2021, more than 2.1 million homeowners who were enrolled in forbearance programs were seriously delinquent (90 days or more behind) on their mortgage payments. Without a clear path to reinstatement, these delinquent homeowners will be headed for foreclosure upon exiting forbearance.
Because lenders will be unable to file Notices Of Default until 2022, these 2.1 million at-risk homeowners have a window in 2021 where they can sell in today’s heated market, retain most of their equity and also protect their credit. I remember watching homeowners in the 2007-2012 era wait too long to put their homes on the market and sadly ended up losing them as the market shifted.
I’m not saying we’re going to have a shifting market soon, but there could be a financial storm on the horizon. The problem is that when people get into financial trouble during these times, it can paralyze them from doing what needs to be done - which many times means selling so they can use their equity to get out of trouble. Sometimes we can see the storm coming but don’t move fast enough to get out of its way.
This is a chart of the short sale and foreclosure market. I don’t want to see that segment come back, but like other things that have caught us off guard, I guess anything is possible.
IN THE COMING MONTHS... I suspect we’ll begin to see the effects of many unforeseen financial issues as a result of the pandemic. The eviction moratorium will soon be coming to an end, as well as any aftermath resulting from those who opted for mortgage forbearance. It’s impossible to know how that will all play out before it actually happens.
Given the soaring costs we’re seeing in almost every aspect of our lives, the end of certain programs, coupled with the age of boomers who own 42% of the real estate and who may be ready for a move, the inventory dam could soon definitely start leaking. That leak may very well break the dam and finally bring an end to the current inventory shortage. We need more than just a trickle of homes -- we need a flood to satisfy all of the awaiting buyers while interest rates are still low.
If you or someone you know is considering selling, I’d be happy to talk with you about your options. It’s impossible to know how much higher our market may go, or how long it could float along the top. One thing is for sure -- we’ve increased in values upwards of 20% over the past 12 months. So whether you sell or not, chances are you’re sitting on some nice equity!