Will There be a Foreclosure Tidal Wave in 2021?

by Joe Sesso on April 16, 2021

Last month, President Joe Biden extended the mortgage forbearance & foreclosure COVID protections for struggling homeowners through June 30. With an estimated 10 million homeowners behind on their mortgage payments, the big question is, “what will happen when the protections expire?” The fear is that it will create a tidal wave of foreclosures. Whether this will happen or not is anyone’s guess, but for Realtors and real estate investors, it may create a win-win situation between them and homeowners.

During the Great Recession of the late 2000s, foreclosures could be found in almost every neighborhood in America. Millions of people lost their homes, and it took years before the housing market was able to return to 2005 pricing levels. Unlike the Great Recession, this situation is very different. Here are three reasons why this potential flood of foreclosures will have a much different impact than the Great Recession.

1. We’re in a Pandemic Economy: The Great Recession was a true recession. Unemployment was high and the economy stalled after the subprime mortgage market imploded. The Pre-COVID economy was strong with record-low unemployment. And while we are not yet back to our Pre-COVID levels, we are much lower than we were in the Great Recession. All expectations point to a return to a robust economy when all of the restrictions are lifted.

2. Lending Rules are Much Different Today: In the mid 2000’s, you could buy a home with no money down and even no job (remember the NINJA loans?). When the economy turned sour, many of these homes went into foreclosure and were abandoned. Today’s lending standards are much more stringent and most loans require a down payment.

3. Home Equity is Much Greater Today: While a strong economy and stricter lending rules can help soften the blow of a large influx of foreclosures, perhaps the biggest factor is the rate of real estate appreciation. With home prices rapidly rising in most markets, homeowners in foreclosure have more options than they had during the Great Recession. For example, if a homeowner needs to sell because they cannot keep up with the payments, they can list their home with a Realtor for a quick sale. This will create a win-win situation. The homeowner sells their home and pays the bank back in full, thus ending the foreclosure proceedings, and should be able to still walk away with a small profit. The buyer wins because they are able to purchase a home quickly, and the Realtor wins because they are able to earn a commission from the sale of the home.

Many homeowners continue to struggle to make mortgage payments through the COVID-19 pandemic. But this economy is much different than the Great Recession, which will give them more options to come out ahead in the end. Mortgage forbearance has been helpful, but the rate of appreciation in their homes will give homeowners more options than before.

Image of Joe Sesso Joe Sesso is the Executive Director of Sales Marketing for Homes.com and an Award Winning & Best Selling Author

Previous post:

Next post: