There has been a lot of discussion as to what will happen once the 2.3 million households currently in forbearance no longer have the protection of the program. Some assume there could potentially be millions of foreclosures ready to hit the market. However, there are four reasons that won’t happen.
1. Almost 50% Leave Forbearance Already Caught Up on Payments
According to the Mortgage Bankers Association (MBA), data through March 28 show that 48.9% of homeowners who have already left the program were current on their mortgage payments when they exited.
26.6% made their monthly payments during their forbearance period
14.7% brought past due payments current
7.6% paid off their loan in full
This doesn’t mean that the over two million still in the plan will exit exactly the same way. It does, however, give us some insight into the possibilities.
2. The Banks Don’t Want the Houses Back
Banks have learned lessons from the crash of 2008. Lending institutions don’t want the headaches of managing foreclosed properties. This time, they’re working with homeowners to help them stay in their homes.
As an example, about 50% of all mortgages are backed by the Federal Housing Finance Agency (FHFA). In 2008, the FHFA offered 208,000 homeowners some form of Home Retention Action, which are options offered to a borrower who has the financial ability to enter a workout option and wants to stay in their home. Home retention options include temporary forbearances, repayment plans, loan modifications, or partial loan deferrals. These helped delinquent borrowers stay in their homes. Over the past year, the FHFA has offered that same protection to over one million homeowners.
Today, almost all lending institutions are working with their borrowers. The report from the MBA reveals that of those homeowners who have left forbearance,
35.5% have worked out a repayment plan with their lender
26.5% were granted a loan deferral where a borrower does not have to pay the lender interest or principal on a loan for an agreed-to period of time
9% were given a loan modification
3. There Is No Political Will to Foreclose on These Households
The government also seems determined not to let individuals or families lose their homes. Bloomberg recently reported:
“Mortgage companies could face penalties if they don’t take steps to prevent a deluge of foreclosures that threatens to hit the housing market later this year, a U.S. regulator said. The Consumer Financial Protection Bureau (CFPB) warning is tied to forbearance relief that’s allowed millions of borrowers to delay their mortgage payments due to the pandemic…mortgage servicers should start reaching out to affected homeowners now to advise them on ways they can modify their loans.”
The CFPB is proposing a new set of guidelines to ensure people will be able to retain their homes. Here are the major points in the proposal:
The proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.
The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
The proposal rule wants temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.
A final decision is yet to be made, and some do question whether the CFPB has the power to delay foreclosures. The entire report can be found here: Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.
4. If All Else Fails, Homeowners Will Sell Their Homes Before a Foreclosure
Homeowners have record levels of equity today. According to the latest CoreLogicHome Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.
Just like the banks, homeowners learned a lesson from the housing crash too.
“In the same way that grandparents and great grandparents were shaped by the Great Depression, much of the public today remembers the 2006 mortgage meltdown and the foreclosures, unemployment, and bank failures it created. No one with any sense wants to repeat that experience…and it may explain why so much real estate equity remains mortgage-free.”
What does that mean to the forbearance situation? According to Black Knight:
“Just one in ten homeowners in forbearance has less than 10% equity in their home, typically the minimum necessary to be able to sell through traditional real estate channels to avoid foreclosure.”
The reports of massive foreclosures about to come to the market are highly exaggerated. As Ivy Zelman, Chief Executive Officer of Zelman & Associates with roughly 30 years of experience covering housing and housing-related industries, recently proclaimed:
“The likelihood of us having a foreclosure crisis again is about zero percent.”
The financial benefits of buying a home as compared to renting one are always up for debate. However, one element of the equation is often ignored – the ability to build wealth as a homeowner.
Most experts are calling for home prices to continue appreciating over the next several years. The most recent Home Price Expectation Survey, a survey of over one hundred economists, real estate experts, and investment and market strategists, expects home appreciation to increase as follows:
Using their annual projections, the graph below shows the equity build-up a purchaser could earn, using a $350,000 home as an example:A homeowner could increase their net worth by over $80,000 in five years. That’s an average of $16,000 annually. That number should be in any equation determining the financial benefits of owning a home compared to renting.
Homeowners are going to make a substantial amount of money in home equity over the next five years. If you’re ready to buy a home, let’s connect so you can enjoy this great benefit as well.
One of the biggest hurdles homebuyers face is saving for a down payment. As you’re budgeting and planning for your home purchase, you’ll want to understand how much you’ll need to put down and how long it will take you to get there. The process may actually move faster than you think.
Using data from the U.S. Department of Housing and Urban Development (HUD) and Apartment List, we can estimate how long it might take someone earning the median income and paying the median rent to save up for a down payment on a median-priced home. Since saving for a down payment can be a great time to practice budgeting for housing costs, this estimate also uses the concept that a household should not pay more than 28% of their total income on monthly housing expenses.
According to the data, the national average for the time it would take to save for a 10% down payment is right around two and a half years (2.53). Residents in Iowa can save for a down payment the fastest, doing so in just over one year (1.31). The map below illustrates this time (in years) for each state:
What if you only need to save 3%?
What if you’re able to take advantage of one of the 3% down payment programs available? It’s a common misconception that you need a 20% down payment to buy a home, but there are actually more affordable options and down payment assistance programs available, especially for first-time buyers. The reality is, saving for a 3% down payment may not take several years. In fact, it could take less than a year in most states, as shown in the map below:
Wherever you are in the process of saving for a down payment, you may be closer to your dream home than you think. Let’s connect to explore the down payment options available in our area and how they support your plans.
Buying a home is different than purchasing most other “products” in one important respect: agreeing to the price tag doesn’t guarantee you’ll get the property! There may be competing offers.
Fortunately, there is plenty that can be done to increase your chances of getting the home you want.
The most effective strategy is to be proactive. Get alerted to and go to see properties that match your criteria the moment they come on the market. That way, you’ll get a jump on competing buyers. When you find a home you want, go in at the right price. You don’t want to pay too much, but your offer does need to signal to the seller that you’re serious.
Effective offer presentation and negotiation also play vital roles. Having your offer presented with expertise and skill will maximize your chances of getting the deal.
Yes, competing offers can make you anxious. But, if you have the right expert working on your behalf, you can breathe a little easier.
A Fannie Maesurvey recently revealed some of the most highly-rated benefits of homeownership, which continue to be key drivers in today’s power-packed housing market. Here are the top four financial benefits of owning a home according to consumer respondents:
88% – a better chance of saving for retirement
87% – the best investment plan
85% – the chance to be better off financially
85% – the chance to build up wealth
Additional financial advantages of homeownership included in the survey are having the best overall tax situation and being able to live within your budget.
Does homeownership actually give you a better chance to build wealth?
No one can question a person’s unique feelings about the importance of homeownership. However, it’s fair to ask if the numbers justify homeownership as a financial asset.
Last fall, the Federal Reserve released the Survey of Consumer Finances, a report done every three years, with the latest edition covering through 2019. Their findings confirmed that homeownership is a clear financial benefit. The survey found that homeownershave forty times higher net worth than renters ($255,000 for homeowners compared to $6,300 for renters).
The difference in net worth between homeowners and renters has continued to grow. Here’s a graph showing the results of the last four Fed surveys:The above graph only includes data through 2019, but according to CoreLogic, the equity held by homeowners grew by $26,300 over the last twelve months alone. That means the gap between the net worth of homeowners and renters has probably widened even further over the last year.
Some might argue the difference in net worth may be due to homeowners normally having larger incomes than renters and therefore the ability to save more money. However, a study by First American shows homeowners have greater net worth than renters regardless of their income level. Here are the findings:Others may think homeowners are older and that’s why they have a greater net worth. However, a Joint Center for Housing Studies ofHarvard Universityreport on homeowners and renters over the age of 65 reveals:
“The ability to build equity puts homeowners far ahead of renters in terms of household wealth…the median owner age 65 and over had home equity of $143,500 and net wealth of $319,200. By comparison, the net wealth of the same-age renter was just $6,700.”
Homeowners 65 and older have 47.6 times greater net worth than renters.
The idea of homeownership as a direct way to build your net worth has met the test of time. Let’s connect if you’re ready to take steps toward becoming a homeowner.
If you own a stock, you can probably go online and quickly look up its current value.
What about your home? That, too, is an important investment and probably your most valuable one. Wouldn’t it be nice if you could “look up” its current value in just a few minutes?
Well, despite all the real estate data available on the internet these days, there is no site that will calculate your home’s true market value – at least not accurately. So, if you were to put your home up for sale tomorrow, how would you determine what it would likely sell for?Your home’s probable selling price is influenced by the following factors:The type and style of your home.The condition of your home. (Is it “move in” ready?)How well your home shows? (Is it staged?)The desirability of the neighborhood.Recent selling prices of similar homes in the area.The current demand for a home like yours. All these factors, especially recent solds in the area, need to be considered in order to come up with the price range within which your property will likely sell.
Why is this information important? If you plan on listing soon, the benefits of knowing the probable selling price is obvious. But even if your plans to move are far down the road, it’s still a good idea to know what your home is worth – today. That information enables you to plan ahead and make better decisions. It’s something worth thinking about.
In a sellers’ market, some homeowners might be tempted to try to sell their house on their own (known as For Sale By Owner, or FSBO) instead of working with a trusted real estate professional. When the inventory of homes for sale is as low as it is today, buyers are eager to snatch up virtually any house that comes to market. This makes it even more tempting to FSBO. As a result, some sellers think selling their house will be a breeze and see today’s market as an opportunity to FSBO. Let’s unpack why that’s a big mistake and may actually cost you more in the long run.
According to the Profile of Home Buyers and Sellers published by the National Association of Realtors (NAR), 41% of homeowners who tried to sell their house as a FSBO did so to avoid paying a commission or fee. In reality, even in a sellers’ market, selling on your own likely means you’ll net a lower profit than when you sell with the help of an agent.
The NAR report explains:
“FSBOs typically sell for less than the selling price of other homes; FSBO homes sold at a median of $217,900 in 2020 (up from $200,000 in 2019), and still far lower than the median selling price of all homes at $242,300. Agent-assisted homes sold for a median of $295,000…Sellers who began as a FSBO, then ended up working with an agent, received 98 percent of the asking price, but had to reduce their price the most before arriving at a final listing price.”
When the seller knew the buyer, that amount was even lower, coming in at $176,700 (See graph below):That’s a lot of money to risk losing when you FSBO – far more than what you’d save on commission or other fees. Despite the advantages sellers have in today’s market, it’s still crucial to have the support of an expert to guide you through the process. Real estate professionals are trained negotiators with a ton of housing market insights that average homeowners may never have. An agent’s expertise can alleviate much of the stress of selling your house and help you close the best possible deal when you do.
If you’re ready to sell your house this year and you’re considering doing so on your own, be sure to think through that decision carefully. Odds are, you stand to gain the most by working with a knowledgeable and experienced real estate agent. Let’s connect to discuss how a trusted advisor can help you, especially in today’s market.
WOW! Residential real estate has always been a hot topic but lately it’s making headlines in the media, blog articles, and among personal conversations more then ever, it seems.
Sellers are discovering now is an excellent time to sell and benefit from the increased equity in their home, and there are a lot of qualified buyers looking to take advantage of the historically low interest rates. It’s a win win for all but we are experiencing inventory that is more than 50% below what it was this time last year. Many sellers are receiving an average of 4 “qualified” offers per listing.
As your buyer’s agent I’m working faster and smarter to help you stand out from the competition and win the bid. As your listing agent, I’m helping you cut through the clutter and strategize on what is the best offer for you to accept to reach your financial goals.
On a personal note, my family and I just had a wonderful spring break in Florida last week and on April 1st we celebrated my Husband Patrick’s birthday. We look forward to both Jack and Kelly’s track season at Cathedral and Saint Simon and we’re working on some small projects around the house. As a realtor, the projects never stop as I’m constantly inspired and motivated to make improvements ;-).