Will the rise in forbearance plans lead to economic turmoil?


Many people have been taking advantage of forbearance plans due to the pandemic, but how will they affect our market? Will it lead to an onslaught of foreclosures? A recent article from the blog Keeping Current Matters addresses this, but in short, the answer is no. Almost three million households are actively in a forbearance plan right now, and though 29% of those in forbearance have remained current on their payments, many have not.


The principal economist at CoreLogic said that 39% of all forborne loans are 150 days or more behind payment, and as many as 25% are 180 days or more past due. So with forbearance, homeowners have been given permission to not make their payments, but the question becomes: How many of them will be able to catch up after their forbearance period ends?


There is speculation that a forthcoming wave of foreclosures could be the result, leading to another crash like we saw more than a decade ago. I witnessed that crash when it happened; I specialized in selling short sales and helped many homeowners avoid foreclosure through the pre-foreclosure process. I can safely say that today’s situation is very different from that housing crisis. Why? Because a majority of homeowners have a tremendous amount of equity in their homes.



"With enough equity, a homeowner has the option to sell their home or tap into their equity through a refinance to help weather the economic shock."



We have just seen an increase in home values over the last few years—even with the pandemic, we saw a 24% increase in prices in our area just this last year. This may mean that there is an increase in the number of homes listed for sale, but because people have equity in their homes, they may choose to sell at what is arguably the top of the market and downsize to a more affordable home rather than face foreclosure. With enough equity, a homeowner has the option to sell their home or tap into their equity through a refinance to help weather the economic shock. 


Won’t the additional homes on the market impact prices? The short answer is no. Realtor.com says that nationally, the number of homes for sale was down by 39.6% in 2020. As you might remember from my last market report, inventory in Ada County was down by 80% from last year. Ultimately, there weren’t enough homes for sale then, and there still aren’t enough now. The national market has the potential to absorb half a million homes this year without it causing home values to depreciate.


The bottom line is that the pandemic has led to both personal and economic hardships for many Americans. The overall residential real estate market, however, has weathered the storm and will continue to do so in 2021.


If you have any questions about forbearance plans or the real estate market, don’t hesitate to reach out to me. I’d love to hear from you.