Will Distressed Properties Begin To Dominate The Housing Market Again?

The Biden Administration recently announced that it would use a "Presidential Announcement" to again extend the foreclosure moratorium for federally-backed mortgage loans. The new date for the moratorium termination has been set to July 31, 2021.

Additionally, many banks have expressed that they would not pursue foreclosures until the new year, meaning that somewhere over the next six months (and a few days), we should expect to see distressed properties return to the market.

Today, we'll take a look at the current distressed property listings in the Tallahassee MLS, and then we'll take a look at why these moratorium announcements are big news for the housing market.

Distressed Homes For Sale

US Home Loan Delinquencies

The talking heads on YouTube have been forecasting a housing market crash when the floodgates open after the moratorium is lifted. I'm not so sure they are really paying attention though.

The best source of data that I found for determining the status of home loans in the US comes from Black Knight, one of the top providers of data and analytics for mortgage and home equity lending and servicing. Here's what Black Knight reports in its latest release on the status of US home loans.

In the graph above, we see the number of loans where the borrower is late on a payment, segmented into three groups. The blue line shows the number of loans where the borrower has not made a payment in the past thirty days, the red line shows loans 60 days late, while the gray line shows the number of loans that are more than 90 days late.

The numbers of loans 30 and 60 days late are already lower than pre-pandemic levels, but the number of loans that are 90 days late has spiked significantly higher, though it has been falling in 2021. This group of just under 1.8 million loans is about 1.2 million higher than pre-pandemic levels.

The green-dashed line measures the overall percentage of delinquencies which has fallen to 4.66% and sits around the same level as what we saw in 2016. When you track the green line across the graph, you realize that today is nothing like what we saw during the housing market collapse of more than ten years ago.

If we consider the years from 2000 to 2005 as "normal," then today's delinquency rate is just one-half a percent higher than what was measured then, and today's delinquency rate is falling!

Forbearance Plans Are A Big Variable

A big variable in the distressed homes market will be those loans that have been on forbearance plans with the lenders. A forbearance is a process where the lender allows the borrower to temporarily pause making payments. The missed payments have to be repeated, usually by extending the term of the loan.

The following graph shows that yesterday was a big day for these loans.

More than 800,000 loans in forbearance should have come off that list yesterday, but it will take some time to see if they are extended, refinanced, satisfied, or moving towards default. Yesterday, there were nearly 2.2 million loans on forbearance plans and roughly 2/3rds will be expired by August 1st.

Knight reports that an estimated 7.2M homeowners entered into a COVID-related forbearance plan at some point since March of 2020, and roughly 70% have already ended their plans, leaving about 2.18M on plans that will expire from yesterday through the end of the year.

We'll continue to monitor both loan status changes and forbearance plans in order to provide insight into how distressed properties will impact the post-COVID housing market.

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