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Whether or not you owned a home in 2008, you likely remember the housing crash that took place back then. And news about an economic slowdown happening today may bring all those concerns back to the surface. While those feelings are understandable, data can help reassure you the situation today is nothing like it was in 2008.

One of the key reasons why the market won’t crash this time is the current undersupply of inventory. Housing supply comes from three key places:

For the market to crash, you’d have to make a case for an oversupply of inventory headed to the market, and the numbers just don’t support that. So, here’s a deeper look at where inventory is coming from today to help prove why the housing market isn’t headed for a crash.

Current Homeowners Putting Their Homes Up for Sale

Even though housing supply is increasing this year, there’s still a limited number of existing homes available. The graph below helps illustrate this point. Based on the latest weekly data, inventory is up 27.8% compared to the same week last year (shown in blue). But compared to the same week in 2019 (shown in the larger red bar), it’s still down by 42.6%.

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | MyKCM

So, what does this mean? Inventory is still historically low. There simply aren’t enough homes on the market to cause prices to crash. There would need to be a flood of people getting ready to sell their houses in order to tip the scales toward a buyers’ market. And that level of activity simply isn’t there.

Newly Built Homes Coming onto the Market

There’s also a lot of talk about what’s happening with newly built homes today, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. Ali Wolf, Chief Economist at Zonda, notes:

“It has become a very competitive market for builders where they are trying to offload any standing inventory.”

To avoid repeating the overbuilding that happened leading up to the housing crisis, builders are reacting to higher mortgage rates and softening buyer demand by slowing down their work. It’s a sign they’re being intentional about not overbuilding homes like they did during the bubble.

And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply because builders today are more cautious than the last time when they built more homes than the market could absorb.

Distressed Properties (Short Sales or Foreclosures)

The last place inventory can come from is distressed properties, including short sales and foreclosures. Back in the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to secure a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from ATTOM Data Solutions on properties with foreclosure filings to help paint the picture of how things have changed since the crash:

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | MyKCM

This graph shows how in the time around the housing crash there were over one million foreclosure filings per year. As lending standards tightened since then, the activity started to decline. And in 2020 and 2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.

That program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market.

Bottom Line

Although housing supply is growing this year, the market certainly isn’t anywhere near the inventory levels that would cause prices to drop significantly. That’s why inventory tells us the housing market won’t crash.

With all the headlines and buzz in the media, some consumers believe the market is in a housing bubble. As the housing market shifts, you may be wondering what’ll happen next. It’s only natural for concerns to creep in that it could be a repeat of what took place in 2008. The good news is, there’s concrete data to show why this is nothing like the last time.

There’s a Shortage of Homes on the Market Today, Not a Surplus

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to tumble. Today, supply is growing, but there’s still a shortage of inventory available.

The graph below uses data from the National Association of Realtors (NAR) to show how this time compares to the crash. Today, unsold inventory sits at just a 3.0-months’ supply at the current sales pace.

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

One of the reasons inventory is still low is because of sustained underbuilding. When you couple that with ongoing buyer demand as millennials age into their peak homebuying years, it continues to put upward pressure on home prices. That limited supply compared to buyer demand is why experts forecast home prices won’t fall this time.

Mortgage Standards Were Much More Relaxed During the Crash

During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. The graph below showcases data on the Mortgage Credit Availability Index (MCAI) from the Mortgage Bankers Association (MBA). The higher the number, the easier it is to get a mortgage.

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Back then, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.

Today, things are different, and purchasers face much higher standards from mortgage companies. Mark Fleming, Chief Economist at First American, says:

“Credit standards tightened in recent months due to increasing economic uncertainty and monetary policy tightening.” 

Stricter standards, like there are today, help prevent a risk of a rash of foreclosures like there was last time.

The Foreclosure Volume Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been on the way down since the crash because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help tell the story:

3 Graphs To Show This Isn’t a Housing Bubble | MyKCM

In addition, homeowners today are equity rich, not tapped out. In the run-up to the housing bubble, some homeowners were using their homes as personal ATMs. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a wave of distressed property listings (foreclosures and short sales), which sold at considerable discounts that lowered the value of other homes in the area.

Today, prices have risen nicely over the last few years, and that’s given homeowners an equity boost. According to Black Knight:

“In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower. . . .”

With the average home equity now standing at $207,000, homeowners are in a completely different position this time.

Bottom Line

If you’re worried we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your concerns. Concrete data and expert insights clearly show why this is nothing like the last time.

As we take a look at the interest rates since January, we can see that is what is really defining the current real estate market right now and the volatility is a result of the moves the Federal Reserve is making to ease inflation – the enemy of long-term interest rates.

this year is really defined by the rising mortgage rates, and what you’re looking at here is the Freddie Mac 30-year fixed rate from January all the way through to the latest data we have today, and what we can see over time is that mortgage rates really ticked up week after week after week. And you know they started to potentially peak right around the mid-June end-of-June time, and now we’re seeing a lot of volatility. So when I say that they’ve peaked, definitely not out of the woods yet, Signs yes, but mortgage rates are showing a lot of volatility right now. Where we are today, a little bit lower than where we were about a month ago, but we’re still watching them. http://www.freddiemac.com/pmms/ https://freddiemac.gcs-web.com/node/25666/pdf

The National Bureau of Economic Research defines what a recession is and when it is. A recession is a significant decline in economic activity, spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale retail sales. Technically, a recession is 2 consecutive quarters of negative growth.

going all the way back to the 1940s, the late forties, every time we’ve seen two consecutive quarters of negative growth, a recession has been called. https://twitter.com/charliebilello/status/1552699775618895873

Looking all the way back to the 1940s, every time we’ve seen two consecutive quarters of negative growth, a recession has been called.

The percentage of economists who said yes a year ago was only about 12%, but look at how that has ticked up over time, and in a year’s time, half of economists say that we’re headed for a recession in the next 12 months. https://www.wsj.com/articles/economic-forecasting-survey-archive-11617814998 (subscription required)

According to a survey from the Wall Street Journal that asked economists if they believe a recession will happen in the next 12 months, we can see more and more of the experts are predicting a recession. A recession is an economic slowdown where, historically, we have seen homes appreciate in value and mortgage rates fall.

In 4 of the last 6 recessions, home prices actually appreciated in value. Now we all remember 2008 when home values lost nearly 20% value, but that’s really a very fundamentally different place than where we are today. The market was drastically different. https://www.corelogic.com/blog/2019/03/housing-recessions-and-recoveries.aspx https://www.thebalance.com/the-history-of-recessions-in-the-united-states-3306011 https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/

In 4 of the last 6 recessions, home prices actually appreciated in value, except for 2008, which we have covered in previous monthly market updates was a fundamentally different place than where we are today.

this is a combination of data from Freddie Mac and mortgage specialists, it shows how from the peak of the recession to the trough, each of those yellow boxes that you can see across this graph, how mortgage rates have fallen in recessionary times. http://www.freddiemac.com/pmms/ https://mtg-specialists.com/2022/05/11/recession-interest-rates-and-real-estate/

In all 6 of the last 6 recessions, interest rates have declined.

Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over. Fortune

One of the biggest reasons a housing crash is not predicted is inventory. In 2008, we had an oversupply of homes on the market – which causes home prices to fall. Today, we have an under supply – which causes home prices to rise.

This is a look at existing inventory and today the total housing inventory registered at the end of June, the latest data that we have, was 1.26 million units. Now if we look at that from a month’s supply, that’s what you’re seeing right here, unsold inventory today is at a three month supply. That’s that little green bar that you can see over on the right. Now compare that to the red bars, that’s the oversupply that we had during the housing bubble when the market crashed. That’s because we had more homes on the market than we had buyers to buy them. We have the exact opposite today, and if you look at this comparatively, where we are today is nowhere near the oversupply we had last time. Now you would have to build a case that a flood of homeowners are getting ready to sell their houses. They’re going to jump into the market, they’re going to make a move and all of this inventory is coming to the market that would actually tip the scales into that oversupply zone. We’re just not even close to being there. The typical neutral market is six to seven months of supply of inventory. We don’t even have half that at this point. So although we know this number is growing and we are keeping an eye on that because more inventory is coming to the market. That’s the tick up we’re seeing this year. We certainly aren’t anywhere near where we could potentially see the market crash, because of so many homes coming onto the market. https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales

We are seeing about a 3-month supply of homes (inventory).  We are far, far away from the 10-month supply of homes we saw leading up to and in 2008. The typical neutral market is 6 to 7 months of supply of inventory.

Now the other place where inventory comes from is new construction. This is a look at monthly new residential construction, and we’ve broken it down into the four stages of construction. Building permits and housing starts, those are our leading indicators that tell us where the market is headed. And then on the bottom under construction and housing units completed, those are the lagging indicators, what’s happened so far. And what we can see in terms of the leading indicators, the two at the top, permits and starts, those are slowing down from May to June. You can see that happening and that’s because builders are saying, hold on, we’re seeing mortgage rates rise. We’re seeing that softening buyer demand. We’re not going to overbuild. We’re not going to get started on more homes than we know we can complete. They’re really being cautious right now, and so while we’ve had 14 years of under supply of newly constructed homes built in this country, they’re not going to overbuild at that time. That’s the little tick down that you can see, so slowing there. And if you look at the bottom, especially down at housing units completed, you can see that we’re headed to build a seasonally adjusted annual rate of about 1.3 million homes this year. Now that’s wonderful. That will add more inventory to the market. It will help really create some options for home majun buyers. But we’re not on pace to have an oversupply. You can see that May to June ticked down on units completed. So we are definitely seeing more new construction. We are on pace to build 1.3 million homes in this country. We haven’t seen that in over 14 years. That’s huge. That’s a wonderful addition to the inventory, but not anything that would take us to an oversupply like we had when the housing market crashed. https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Inventory can also come from new construction. Building permits and housing starts are the leading indicators (what is to come), while under construction and housing units completed are the lagging indicators (what has happened). The leading indicators are slowing down from May to June as builders are seeing mortgage rates rise. This shows further confirmation that we’re not on pace to have an oversupply.

Now the third place where inventory comes from, we’ve talked about this quite a bit over the past couple of years, is foreclosures or short sales or distressed properties. The reason we’re not going to be seeing a flood of foreclosures, a big part of that is because lending standards are under control. Now back when the housing bubble burst, we had much looser lending standards. They’ve tightened up significantly and that’s what this graph shows. This is the mortgage credit availability index, and it shows the higher that green line is, the easier it was to get a loan. what you can see in 2006, 2007, it really peaked where we used to joke that it was harder to not get a loan than to get a loan. It was much easier for someone to secure a home loan and that created inflated demand and many millions of people were foreclosed on their homes because they weren’t coming to the table as a qualified buyer and they weren’t able to repay their loan over time. Now you can see that that green line really drops off 2008, 2009. That’s when lending standards really tightened, that’s when we were required to have a more qualified buyer. So those who are securing home loans today, you can see that green line really hovering along at the bottom, are much more qualified buyers, more likely to repay their loans and not go into foreclosure. So that’s a huge difference that we have today https://www.mba.org/news-research-and-resources/newsroom https://www.mba.org/news-and-research/newsroom/news/2022/07/12/mortgage-credit-availability-decreased-in-june

Finally, inventory could come from distressed properties like foreclosures and short sales. The mortgage credit availability index shows how much harder it has become for someone to secure a home loan as lending standards have tightened.  More qualified buyers means less distressed properties.

this is US properties with foreclosure filings. and it shows foreclosure activity by year. You can see those red bars are when we had over a million foreclosures per year, a million foreclosure filings per year in the housing market, and the lending standard tightening that I showed you, did this, made it drop right down consistently, starting especially in about 2011, fewer and fewer foreclosures every year in this country. Now you can take 2020 and 2021 out for a second, because we know we had a moratorium on foreclosures in that time period, but overall tightening lending standards really changed the game with a more qualified buyer. https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

There are fewer and fewer foreclosures every year in this country, and especially in the past year or two due to the moratorium on foreclosures.

foreclosure activity by year. Now this is for January through June of every year going back to 2008, so the first half of the year. That’s the latest data we have right now, so it’s the best comparison for you to see where are we today in 2022, knowing that there are more foreclosures coming back to the market. Now it’s not a flood of foreclosures because what you can see is 2022 over on the right has just under 165,000 foreclosure filings this year so far. We can compare that back to 2020, pretty much on par with 2020, not even as much as we had in 2018 or 2019. So moving back in the direction of a pre pandemic year, but not a flood like we had in those red bars where millions of homes were coming to the market as foreclosures. I think we could really look at this and say lending standards have changed the game. We know that there are more foreclosures coming to the market this year, but it’s nowhere near anything that could cause the market to crash with a wave of foreclosures. So our hearts go out to anyone who’s in this situation. We never want to see anyone go through this process, but we’re certainly not looking at a crisis or a crash that would cause prices to decline significantly because of inventory coming from distressed properties. https://www.attomdata.com/news/market-trends/foreclosures/attom-midyear-2022-u-s-foreclosure-market-report/

Looking at foreclosure activity by year, going back to 2008, we are seeing about half of the foreclosures compared to pre-pandemic numbers and less than 10% of post-2008 numbers. Lending standards have changed the game.

This is now a monthly report and it’s the loans upon exiting the forbearance program. So this is current as of the very end of June, and what it shows is that 36% of mortgages coming out of forbearance were actually paid off, brought current, all set, people staying in their homes, no issues whatsoever, just walking away from forbearance, staying in their homes. That’s huge, but what’s even more important is if you look at this blue section, 45% were workouts or repayment plans. So people who were able to do modifications, loan deferrals, they went back to their banks and they changed their situation, and that’s huge. This is the opportunity that homeowners didn’t have in 2008, that they have today, is to work out a plan so they don’t have to lose their homes. Banks were up and down that they didn’t want that to happen ever again and the forbearance program changed the game. So what this really shows is if you put the green and the blue together, that four out of every five homeowners coming out of forbearance are just fine. They’re staying in their homes. They’ve worked out of plan. They’ve paid off their loans. Now there is that orange section of those who are still in trouble, 17% have no loss mitigation plan coming out of forbearance, and so that’s created some concerns, but truly, those homeowners with today’s growing equity and appreciating home values, have enough equity to be able to sell their homes, make a move and avoid the foreclosure process. So people today have different options that they didn’t have before and that is huge. That is changing the landscape and one of the biggest reasons why we won’t see a wave of foreclosures coming to the market. Right now we only have about 400,000 homes that are actually in forbearance, and of course we don’t want any of those to go to foreclosure, but even if they did, even if all of those homes or even if those homeowners all sold those homes, we have such an under supply of homes on the market today that they’d be scooped up instantly, and it wouldn’t cause a crash for the market. https://www.mba.org/news-and-research/newsroom/news/2022/07/18/share-of-mortgage-loans-in-forbearance-decreases-to-081-in-june

36% of mortgages coming out of forbearance were paid off. 45% worked out repayment plans (modifications, loan deferrals, etc) – an opportunity that homeowners didn’t have in 2008. The forbearance program changed the game. 4 out of 5 homeowners are coming out of forbearance. However, 17% have no loss mitigation plan, but mostly have enough equity to be able to sell their homes and avoid the foreclosure process. Today, there are different options, and why we won’t see a wave of foreclosures coming to the market. If all 400,000 homes in forbearance came to market, it would still be under supplied.

Foreclosure activity... continued its slow, steady climb back to pre-pandemic levels in the first half of 2022... While overall foreclosure activity is still running significantly below historic averages, the dramatic increase in foreclosure starts suggests that we may be back to normal levels by sometime in early 2023. Rick Sharga, Executive VP of Market Intelligence, ATTOM

The increased amount of foreclosures this year could be due to the lack of foreclosures the past two years.

So I think if look at this perspective, the three places where inventory comes from today, if you look at months inventory of homes for sale, even if we have homes coming from all three of those places, we’re still in a seller’s market. That’s that green line down on the bottom. You can see where it says today right in the center, that inventory line is rising. It is climbing and that is great news for the housing market, but nowhere near those 2008 to 2010 regions, where we truly had an oversupply of homes on the market that caused the housing market to crash. So as we think about that, three places where inventory comes from, existing homes, new homes and distressed properties, nothing that would cause the market to crash nar.realtor https://www.nar.realtor/topics/existing-home-sales

Today, we are in a seller’s market, but what does the rest of the year hold?

This chart is a look at mortgage rate projections that were just released in July from Freddie Mac, Fannie Mae, MBA, and NAR. Now, if we look at these across the board, we can average them all out over each quarter, and that right column shows the average of all four. So what is it telling us? It’s really saying that mortgage rates are projected to kind of hang in this steady space right about where we are right now. So mortgage rates being a little more stabilized next year. So that’s great news for buyers who you know might have been priced out of the market or you know have pressed pause on their plans because mortgage rates have been rising so rapidly. https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://www.fanniemae.com/media/44131/display https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-july-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/forecast-q2-2022-us-economic-outlook-04-27-2022.pdf

Freddie Mac, Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors® are predicting mortgage rates to waiver around the current rate with a more stabilized rate next year.

There could be “a potential silver lining” for the market, he added, as stabilizing mortgage rates and rising inventory “may bring some buyers back to the market during the second half of the year.” CNBC, Quoting Joel Kan, Economist, MBA
surveyed almost 400 agents and asked what’s the biggest question that your clients are asking you right now – it’s about a crash and it’s about pricing. They want to know where are prices headed? Well, if you look at what the experts are saying, this is the home price forecast for 2022. We follow seven key industry leaders on home pricing. These get updated, some monthly, some quarterly, and if you look at them and average them all together, the average of all seven is showing 10.3% home price appreciation through the end of this year. So as we look at this year, we are certainly seeing a slowing, a decelerating price appreciation. Last year we saw an average of 15% according to CoreLogic, homes appreciated by 15%. We’re not necessarily looking at that much appreciation, but nationwide in most markets, experts are saying an average of 10.3% appreciation going forward. https://www.fanniemae.com/media/44131/display https://www.freddiemac.com/research/forecast/20220720-quarterly-forecast-market-slowdown-will-continue-high-rates-and-prices-exacerbate https://cdn.nar.realtor/sites/default/files/documents/forecast-q3-2022-us-economic-outlook-07-27-2022.pdf https://www.corelogic.com/intelligence/find-stories/corelogic-hpi-posted-record-year-over-year-growth-in-2021/ https://pulsenomics.com/surveys/#home-price-expectations https://www.zelmanassociates.com/ (subscription required) https://www.mba.org/docs/default-source/research-and-forecasts/forecasts/mortgage-finance-forecast-july-2022.pdf

Looking at what the 7 key industry leaders are saying about home pricing, we are seeing about 10.3% home price appreciation through the end of this year. A more moderate growth than the 15% we saw last year, but still extremely healthy appreciation in most markets.

I don’t think national housing prices will decline in a meaningful way, . . . but there will be some price declines across the country. Mark Zandi, Chief Economist, Moody’s Analytics
There is also a decrease in home sales due to the softening of buyer demand in light of the rising mortgage rates. The National Association of Realtors® is saying that, at the current pace of sale today, we are projected to sell 5.1 million homes in this country this year.   Now look at that compared to 2020 and 2021, it’s a drop off, right? Those were exceptional years. They were out of the ordinary. Existing home sales through the roof due to all of the record low mortgage rates, the changing needs of the pandemic, all the things. And what this probably feels like right now is this analogy you’ve heard us use so many times, last year you were driving down the road at 80 miles an hour, you were cruising and you came around a corner and you saw the flashing lights and you slammed on your brakes and suddenly you’re going 60, 65, and it feels like you’re crawling. That may be what you’re feeling right now when it comes to home sales, however, you’re still going the speed limit, because if you look at the green bar compared to the pre pandemic years, 2018, 2019, much more in line with pre pandemic years, and let’s not forget, those were great years in real estate. So home sales softening a bit, but still projected to sell 5.1 million homes in this country. https://www.nar.realtor/research-and-statistics/housing-statistics/existing-home-sales https://cdn.nar.realtor/sites/default/files/documents/ehs-05-2022-overview-2022-06-21.pdf

There is also a decrease in home sales due to the softening of buyer demand in light of the rising mortgage rates. The National Association of Realtors® is saying that, at the current pace of sale today, we are projected to sell 5.1 million homes in this country this year. Of course, that is a decrease considering the sales the past 2 years, which were extraordinary years in the real estate market. The 5.1 million projection puts us back in line with the pre-pandemic years of 2017-2019.

And if we look at that from a total home sales forecast, this is from Freddie, Fannie, and MBA, we can see that those blue bars were what the experts forecast in January, that was before mortgage rates took their climb, and the re-forecast in the green bars is the latest from July of 2022. So latest data we have right now, a little bit of a softening in total home sales. We sold about 7 million homes last year. We’re looking more like anywhere between 5.8, 6.4 million homes for this year at the current pace. Now again, still very strong years in real estate, and what I want you to think about too is that this is pretty typical for the experts to re-forecast coming in high at the beginning of the year, we see how the year has kind of shaken out and they re-forecast. 2020 was a great example, forecaster down and then we exceeded expectations and sold a record number of homes that year. So the re-forecasting is very typical in the industry. So mortgage rates projected to hold fairly steady. Home sales softening just a little bit and prices projected to continue rising at a little bit more of a moderate rate in most markets. https://www.freddiemac.com/research/forecast?page=0 https://www.fanniemae.com/research-and-insights/forecast/forecast-monthly-archive https://www.mba.org/news-and-research/forecasts-and-commentary/mortgage-finance-forecast-archives

In lieu of the rising mortgage rates, Freddie Mac, Fannie Mae, and the Mortgage Bankers Association re-forecasted their home sales predictions for 2022 from 7 million to 6 million. Still a very strong number, which should hold steady as the interest rates begin to balance out.

three reasons to buy a home today. If you think about the forecast where home prices are, buying before prices rise higher, mortgage rates holding kind of steady. Inventory is starting to tick up and come back to the market. There are three things that are happening right now that are creating a great scenario. April the average home sold had 5.5 offers. If you look over on the left, it ticked down to 4.2 in May, 3.4 in June. That is a trend that we are seeing going forward. Fewer homes selling above asking price, you can see that percentage has ticked down from 61% to 51%, but don’t get me wrong, still a very competitive market if 51% or half of homes are selling over asking, this is definitely still a competitive market, but a better time for buyers to jump in if they’re ready to find a home and supply of homes for sale is growing. You can see that inventory, that month’s supply ticking up as the pace of home sales and more homes came back to the market. So certainly not easy to find a home, but right now there’s no doubt it’s still very competitive, but definitely not as impossible as it may have felt for those who probably stepped out of the process last year or the beginning of this year. https://cdn.nar.realtor/sites/default/files/documents/2022-05-realtors-confidence-index-06-21-2022.pdf https://cdn.nar.realtor/sites/default/files/documents/2022-06-realtors-confidence-index-report-07-20-2022.pdf https://www.nar.realtor/topics/existing-home-sales https://www.nar.realtor/newsroom/existing-home-sales-slid-5-4-in-June https://www.globenewswire.com/news-release/2022/05/19/2447085/0/en/Existing-Home-Sales-Retract-2-4-in-April.html

Today there are fewer multiple offer scenarios, fewer homes selling above asking price, and the supply of homes for sale is growing – all providing a great scenario for buyers right now. We have dropped from 5.5 offers on a home in April to 3.4 in June. We’ve gone from 61% of homes selling above asking price to 51% – still competitive, but decreasing. Finally, inventory has creeped from 2.2 months supply on hand to 3.0. All three trends that should continue moving forward.

While you may have seen recent stories about the volume of foreclosures today, context is important. During the pandemic, many homeowners were able to pause their mortgage payments using the forbearance program. The goal was to help homeowners financially during the uncertainty created by the health crisis.

When the forbearance program began, many experts were concerned it would result in a wave of foreclosures coming to the market, as there was after the housing crash in 2008. Here’s a look at why the number of foreclosures we’re seeing today is nothing like the last time.

1. There Are Fewer Homeowners in Trouble

Today’s data shows that most homeowners are exiting their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The graph below depicts those findings from the Mortgage Bankers Association (MBA):

What You Actually Need To Know About the Number of Foreclosures in Today’s Housing Market | MyKCM

The same MBA report mentioned above estimates there are approximately 525,000 homeowners who remain in forbearance today. Thankfully, those people still have the chance to work out a suitable repayment plan with the servicing company that represents their lender.

2. Most Homeowners Have Enough Equity To Sell Their Homes

For those who are exiting the forbearance program without a plan in place, many will have enough equity to sell their homes instead of facing foreclosures. Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home.

Marina Walsh, CMB, Vice President of Industry Analysis at MBA, says:

“Given the nation’s limited housing inventory and the variety of home retention and foreclosure alternatives on the table across various loan types, . . . Borrowers have more choices today to either stay in their homes or sell without resorting to a foreclosure.”

3. There Have Been Fewer Foreclosures over the Last Two Years

One of the seldom-reported benefits of the forbearance program was it gave homeowners facing difficulties an extra two years to get their finances in order and work out a plan with their lender. That helped prevent the foreclosures that normally would have come to the market had the new forbearance program not been available.

Even as people leave the forbearance program, there are still fewer foreclosures happening today than before the pandemic. That means, while there are more foreclosures now compared to last year (when foreclosures were paused), the number is still well below what the housing market has seen in a more typical year, like 2017-2019 (see graph below):

What You Actually Need To Know About the Number of Foreclosures in Today’s Housing Market | MyKCM

4. The Current Market Can Easily Absorb New Listings

When the foreclosures in 2008 hit the market, they added to the oversupply of houses that were already for sale. It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:

“Total housing inventory at the end of March totaled 950,000 units, up 11.8% from February and down 9.5% from one year ago (1.05 million). Unsold inventory sits at a 2.0-month supply at the present sales pace, up from 1.7 months in February and down from 2.1 months in March 2021.”

A balanced market would have approximately a six-month supply of inventory. At 2.0 months, today’s housing market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.

Bottom Line

If you see headlines about the increasing number of foreclosures today, remember context is important. While it’s true the number of foreclosures is higher now than it was last year, foreclosures are still well below pre-pandemic years.

Homeownership has become a major element in achieving the American Dream. A recent report from the National Association of Realtors (NAR) finds that over 86% of buyers agree homeownership is still the American Dream.

Prior to the 1950s, less than half of the country owned their own home. However, after World War II, many returning veterans used the benefits afforded by the GI Bill to purchase a home. Since then, the percentage of homeowners throughout the country has increased to the current rate of 65.5%. That strong desire for homeownership has kept home values appreciating ever since. The graph below tracks home price appreciation since the end of World War II:

Why This Housing Market Is Not a Bubble Ready To Pop | MyKCM

The graph shows the only time home values dropped significantly was during the housing boom and bust of 2006-2008. If you look at how prices spiked prior to 2006, it looks a bit like the current spike in prices over the past two years. That may lead some people to be concerned we’re about to see a similar fall in home values as we did when the bubble burst. To help alleviate those worries, let’s look at what happened last time and what’s happening today.

What Caused the Housing Crash 15 Years Ago?

Back in 2006, foreclosures flooded the market. That drove down home values dramatically. The two main reasons for the flood of foreclosures were:

1. Many purchasers were not truly qualified for the mortgage they obtained, which led to more homes turning into foreclosures.
2. A number of homeowners cashed in the equity on their homes. When prices dropped, they found themselves in an underwater situation (where the home was worth less than the mortgage on the house). Many of these homeowners walked away from their homes, leading to more foreclosures. This lowered neighboring home values even more.

This cycle continued for years.

Why Today’s Real Estate Market Is Different

Here are two reasons today’s market is nothing like the one we experienced 15 years ago.

1. Today, Demand for Homeownership Is Real (Not Artificially Generated)

Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home. Today, purchasers and those refinancing a home face much higher standards from mortgage companies.

Data from the Urban Institute shows the amount of risk banks were willing to take on then as compared to now.

Why This Housing Market Is Not a Bubble Ready To Pop | MyKCM

There’s always risk when a bank loans money. However, leading up to the housing crash 15 years ago, lending institutions took on much greater risks in both the person and the mortgage product offered. That led to mass defaults, foreclosures, and falling prices.

Today, the demand for homeownership is real. It’s generated by a re-evaluation of the importance of home due to a worldwide pandemic. Additionally, lending standards are much stricter in the current lending environment. Purchasers can afford the mortgage they’re taking on, so there’s little concern about possible defaults.

And if you’re worried about the number of people still in forbearance, you should know there’s no risk of that causing an upheaval in the housing market today. There won’t be a flood of foreclosures.

2. People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s

As mentioned above, when prices were rapidly escalating in the early 2000s, many thought it would never end. They started to borrow against the equity in their homes to finance new cars, boats, and vacations. When prices started to fall, many of these homeowners were underwater, leading some to abandon their homes. This increased the number of foreclosures.

Homeowners didn’t forget the lessons of the crash as prices skyrocketed over the last few years. Black Knight reports that tappable equity (the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV) has more than doubled compared to 2006 ($4.6 trillion to $9.9 trillion).

The latest Homeowner Equity Insights report from CoreLogic reveals that the average homeowner gained $55,300 in home equity over the past year alone. Odeta Kushi, Deputy Chief Economist at First American, reports:

“Homeowners in Q4 2021 had an average of $307,000 in equity – a historic high.”

ATTOM Data Services also reveals that 41.9% of all mortgaged homes have at least 50% equity. These homeowners will not face an underwater situation even if prices dip slightly. Today, homeowners are much more cautious.

Bottom Line

The major reason for the housing crash 15 years ago was a tsunami of foreclosures. With much stricter mortgage standards and a historic level of homeowner equity, the fear of massive foreclosures impacting today’s market is not realistic.

A recent survey revealed that many consumers believe there’s a housing bubble beginning to form. That feeling is understandable, as year-over-year home price appreciation is still in the double digits. However, this market is very different than it was during the housing crash 15 years ago. Here are four key reasons why today is nothing like the last time.

1. Houses Are Not Unaffordable Like They Were During the Housing Boom

The affordability formula has three components: the price of the home, wages earned by the purchaser, and the mortgage rate available at the time. Conventional lending standards say a purchaser should not spend more than 28% of their gross income on their mortgage payment.

Fifteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased, and the mortgage rate, even after the recent spike, is still well below 6%. That means the average purchaser today pays less of their monthly income toward their mortgage payment than they did back then.

In the latest Affordability Report by ATTOM Data, Chief Product Officer Todd Teta addresses that exact point:

“The average wage earner can still afford the typical home across the U.S., but the financial comfort zone continues shrinking as home prices keep soaring and mortgage rates tick upward.”

Affordability isn’t as strong as it was last year, but it’s much better than it was during the boom. Here’s a chart showing that difference:

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

If costs were so prohibitive, how did so many homes sell during the housing boom?

2. Mortgage Standards Were Much More Relaxed During the Boom

During the housing bubble, it was much easier to get a mortgage than it is today. As an example, let’s review the number of mortgages granted to purchasers with credit scores under 620. According to credit.org, a credit score between 550-619 is considered poor. In defining those with a score below 620, they explain:

“Credit agencies consider consumers with credit delinquencies, account rejections, and little credit history as subprime borrowers due to their high credit risk.”

Buyers can still qualify for a mortgage with a credit score that low, but they’re considered riskier borrowers. Here’s a graph showing the mortgage volume issued to purchasers with a credit score less than 620 during the housing boom, and the subsequent volume in the 14 years since.

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified. Let’s take a look at what that means going forward.

3. The Foreclosure Situation Is Nothing Like It Was During the Crash

The most obvious difference is the number of homeowners that were facing foreclosure after the housing bubble burst. The Federal Reserve issues a report showing the number of consumers with a new foreclosure notice. Here are the numbers during the crash compared to today:

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

There’s no doubt the 2020 and 2021 numbers are impacted by the forbearance program, which was created to help homeowners facing uncertainty during the pandemic. However, there are fewer than 800,000 homeowners left in the program today, and most of those will be able to work out a repayment plan with their banks.

Rick Sharga, Executive Vice President of RealtyTrac, explains:

“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect.”

Why are there so few foreclosures now? Today, homeowners are equity rich, not tapped out.

In the run-up to the housing bubble, some homeowners were using their homes as personal ATM machines. Many immediately withdrew their equity once it built up. When home values began to fall, some homeowners found themselves in a negative equity situation where the amount they owed on their mortgage was greater than the value of their home. Some of those households decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area.

Homeowners, however, have learned their lessons. Prices have risen nicely over the last few years, leading to over 40% of homes in the country having more than 50% equity. But owners have not been tapping into it like the last time, as evidenced by the fact that national tappable equity has increased to a record $9.9 trillion. With the average home equity now standing at $300,000, what happened last time won’t happen today.

As the latest Homeowner Equity Insights report from CoreLogic explains:

“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”

There will be nowhere near the same number of foreclosures as we saw during the crash. So, what does that mean for the housing market?

4. We Don’t Have a Surplus of Homes on the Market – We Have a Shortage

The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation. As the next graph shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s a shortage of inventory, which is causing the acceleration in home values to continue.

4 Simple Graphs Showing Why This Is Not a Housing Bubble | MyKCM

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a shortage of homes for sale.

If you’re worried that we’re making the same mistakes that led to the housing crash, the graphs above show data and insights to help alleviate your concerns.

Real estate is one of the time-honored inflation hedges. It's a tangible asset, and those tend to hold their value when inflation reigns, unlike paper assets. More specifically, as prices rise, so do property values. Mark P. Cussen, Financial Writer, Investopedia

With homeownership you can lock in the cost today, and have an asset that increases in value over time, making it a great hedge against inflation.

Homeownership: A Hedge Against Inflation where home prices appreciate at a greater rate than inflation. 2021 at 18% appreciation and 6.8% inflation 2020 at 2021 at 9.2% appreciation and 1.4% inflation 2010s at 4.9% appreciation and 1.8% inflation 2000s at 2.3% appreciation and 2.6% inflation 1990 at 4% appreciation and 3% inflation 1980s at 5.5% appreciation and 5.6% inflation 1970s at 9.9% appreciation and 7.1% inflation https://cdn.nar.realtor/sites/default/files/documents/2021-11-12-residential-economic-issues-and-trends-lawrence-yun-presentation-slides-11-12-2021.pdf https://www.bls.gov/news.release/archives/cpi_01132021.pdf https://www.corelogic.com/intelligence/find-stories/home-prices-topple-expectations-surging-at-the-end-of-2020/

When looking at home price appreciation versus consumer price increases gong back to the 1970s, we can see how home price appreciation outpaces inflation. Of course, the 2000s was a fundamentally different housing market with an oversupply of homes and lower lending standards. Overall, we can see that buying a home today would not only lock in today’s costs and provide a hedge against inflation, but avoid the rising rental rates.

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same. That’s certainly not the case if you’re renting. James Royal, Senior Wealth Management Reporter, Bankrate

Rental prices are skyrocketing, and the forecasts project that not only will home values will continue rising, but so will mortgage rates.

Rent Increase Greater Than InflationMost Years looking at Rental Price Appreciation and Core Inflation Rate from 1973 – 2020 https://ipropertymanagement.com/research/average-rent-by-year https://www.usinflationcalculator.com/inflation/united-states-core-inflation-rates/

Rent increases have been greater than inflation in most years. That means it’s more expensive to rent over time.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That’s staggering.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home.

For a $200,000 home at 3.5% interest rate today your monthly payment would be $898. However, in Q1 of 2023 when that same home will be $212,600, interest rates will be $3.8%, and now your monthly payment is $990. That’s a difference of $33,314 over the life of the 30-year mortgage. That amount jumps to $66,625 for a $400,000 home. That’s staggering.

Homeowners are shielded from mounting rental prices because their cost is fixed, regardless of what’s happening in the market. . . . Tangible assets like real estate get more valuable over time, which makes buying a home a good way to spend your money during inflationary times. Natalie Campisi, Advisor Staff, Forbes

Tangible assets like real estate get more valuable over time making buying a home a good way to spend your money during inflationary times.

Every quarter, Pulsenomics surveys a distinguished panel of over 100 economists, investment strategists, and housing market analysts regarding their 5-year expectations for future home prices in the United States. I think this gives you a real clear picture of where home prices are projected to head according to the experts. Now the Home Price Expectation Survey is a survey of 100 economists, data analysts, people who are projecting out home price appreciation, and in the fourth quarter of last year this is the projection for cumulative house appreciation by 2026. So what are you looking at? They divided out the group into optimists and pessimists, optimists being the ones projecting the most appreciation over the next appreciation over the next five years and pessimists estimating on the lower side. So take a look at that orange bar, those are the pessimists, you know the experts that are saying home price appreciation on the lower side, cumulatively, by 2026 it’s going to be over 23 percent. So as experts look forward, the conditions of the market, what’s projected to happen? Home values are expected to increase in value over time, even on the lower end, 23 percent, 23.7 is pretty significant over the next five years, so locking in today’s cost is mission critical for those who have the opportunity to do so, to protect themselves in their largest monthly payment because as we know, with home prices rising, mortgage rates rising, inflation all around us, it’s going to get more expensive to purchase a home. https://pulsenomics.com/surveys/#home-price-expectations

This is the Home Price Expectation Survey of 100 economists and data analysts from Q4 of 2021, and represents their house appreciation forecasts by 2026. The group was divided into optimists and pessimists, where optimists projecting the most appreciation over the next 5 years, and the pessimists estimate on the lower end. The pessimists are saying that by 2026 houses will appreciate in value by over 23%. That is pretty significant.  

Mortgage rates remain unchanged from last week. The economy lost momentum in January, leaving mortgage rates unchanged from last week and relatively flat for a third consecutive week. This stagnation reflects the economic impact of the Omicron variant of COVID-19, which we believe will subside in the coming months. As economic recovery continues going into the spring and summer, mortgage rates are expected to resume their upward trajectory. In the meantime, recent data suggests that homebuyer demand continues to be elevated as supply remains low, driving higher home prices. Sam Khater, VP and Chief Economist, Freddie Mac
So if we look at this rise in rates, we’re at about 3.55 percent, this graphic goes back to the beginning of 2020 and we’re starting to get back in the area, we’re back in the area of where we started when the pandemic came on us in March of 2020. Just to put that in perspective. The Fed comes in and acts, the influence. They don’t control mortgage rates but they influence the rates down and now we’re back, coming back up. Certainly a sign that we can all hope for, that the economy is improving, that we’re getting through this and we’re moving ahead, that would be my word for it. If you take a little bit larger look, if you go back to the beginning of 2018, which is what this graphic shows on the average 30-year fixed, and sort of make this line of 3.55 percent, you can see where we sit there, right? Certainly we’re higher back in 2018 and ‘19 started to come down and certainly dropped to historic lows during the pandemic and we’re starting to come back out of that. You know perspective on that, again from Freddie Mac, “As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper. However, the combination of a large number of entry level homebuyers facing a shortage of entry level inventory of homes for sale should keep the housing market competitive.” No doubt we’ll see a housing market that is competitive this year. http://www.freddiemac.com/pmms/pmms_archives.html

We’ve recently seen a rise in mortgage rates. Some of the last reported numbers have us around 3.55%, which is certainly higher than in some past years, but the housing market is expected to remain pretty competitive this year. It’s about to start feeling like interest rates are going to be high, but they are historically low for the U.S.

As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper. However, the combination of a large number of entry level homebuyers facing a shortage of entry level inventory of homes for sale should keep the housing market competitive... In 2022, we expect purchase originations to grow from 1.9 trillion in 2021 to 2.1 trillion in 2022, while refinance activity is anticipated to decrease, from 2.7 trillion in 2021 to 1.2 trillion in 2022. Freddie Mac

Let’s look at two of the mortgage markets – the purchase market and the refinance market. The purchase market is forecasted to grow, and the refinance market is forecasted to constrict – a typical reaction in a rising rate environment.

This is a look at the 10-year treasury, going back to the beginning of December, just two months ago, and what do we know? During that time, the rate on the 10-year treasury yield has skyrocketed, knowing on the door right now, of 2 percent https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

Let’s tie in the 10-year treasury for a moment. In the last 2 months, the rate on the 10-year treasury yield has skyrocketed. Why is that important?

 . For the last 50 years, the relationship between the mortgage rate and the 10-year treasury yield has been almost symbiotic, okay? Wherever the 10-year treasury yield goes, there goes the 30-year fixed rate, okay? The Fed and the Fed raising rates does not control interest rates, it can only hope to influence it. What we want to watch is the 10-year treasury yield. https://ycharts.com/indicators/10_year_treasury_rate www.freddiemac.com

For the last 50 years, the relationship between the mortgage rate and the 10-year treasury yield has been almost symbiotic. Wherever the 10-year treasury yield goes, there goes the 30-year fixed rate. The Fed does not control interest rates – it can only hope to influence them. Overall, the 10-year treasury yield may be something worth watching.

Mortgage rates hit their highest levels since March 2020, leading to the slowest pace of refinance activity in over two years. Joel Kan, Associate VP of Economic and Industry Forecasting, MBA

Month after month we have talked about why we will not see a wave of foreclosures coming to the market, so let’s wrap up this month looking at the latest data.

Loans in forbearance have fallen below one million. This is massive. We’re at roughly 780,000 loans in forbearance today and that equates to only about 1.4 percent of mortgages. If you think about where we started, over there in the red bars on the left, there were nearly five million homes in the forbearance plan in May of 2020 and we’re down to about 780,000. So huge progress and just one more way that shows that the forbearance program has really helped homeowners change their situations, stay in their homes and really be in a better place than they would have been in such a time of economic uncertainty, and this is vastly different than what we saw in 2008. https://www.blackknightinc.com/blog-posts/

Loans in forbearance have fallen below one million. This is huge. We are at roughly 780,000 loans in forbearance which equates to 1.4% of mortgages. It is wonderful to see that the forbearance program has really helped homeowners change their situations during such a time of economic uncertainty.

As the COVID-19 pandemic continues to create uncertainty in the global economy, the overwhelming majority (89%) of single-family homeowners who sought financial assistance through COVID-related mortgage payment forbearance plans have exited those plans. Andy Walden, VP of Market Research, Black Knight Data
38.1 percent of homeowners exiting the forbearance plan are paid in full. So they’ve made their monthly payments or they’ve paid off their loan. They’ve done something to bring their payments current and they’re in a great place, they’re walking away no issue. Now, 43.7 percent are workouts or repayment plans. This is the game-changing section, this is the section we didn’t have the last time around when the housing bubble burst, because these are the homeowners who have been able to make a modification, a loan deferral, to go back to their bank and work with their bank or their lender to change their situation and stay in their homes. This is huge and what we’ve been saying over time is this section is getting a little bit bigger than the green section and that’s because more and more people have been able to go back and work out an alternate plan. That is massive. Now, the percentage of homeowners that are still in trouble are in the orange section, 18.2 percent, but what this does mean is that these homeowners are exiting the plan without a loss mitigation plan, but on the safe side, what we know from Black Knight is that 93 percent of homeowners in the forbearance plan have at least 10 percent equity. So when you have that equity, you also have the opportunity to potentially sell your home rather than go into forbearance. So people sitting in this situation, you know 10 percent is kind of that tipping point of you could sell your house, you could pay off your fees, you could you know maybe even walk away with a little cash in your pocket if you sell your home, and so FEBRUARY 2022 KCM – FEBRUARY 2022 6 of 7 that gives someone a different opportunity than going into forbearance. We have a very strong equity situation across the country right now, enabling that opportunity. https://www.mba.org/news-research-and-resources/newsroom https://www.mba.org/2022-press-releases/january/share-of-mortgage-loans-in-forbearance-decreases-to-141-percent-in-december-2021

Looking at loans upon exiting the forbearance program, about 38% percent of homeowners are paid in full by either making monthly payments or paying off their loan. Then, about 44% percent are on some sort of repayment plan – homeowners who have been able to make a loan modification or deferral. Unfortunately, 18.2% of homeowners are exiting the forbearance plan without a loss mitigation plan. The bright side of that is, according to Black Knight, 93% of homeowners in a forbearance plan have at least 10% equity, allowing them the opportunity to sell their home. To put this all in perspective, during the housing bubble burst in 2008, we saw 9.3 million homes go into foreclosure. We are in a very different situation today.

What this says here is that 422,360 fewer foreclosures over the last year. So we have significantly fewer foreclosures today than we would even in a normal year. 2017, 2018 and 2019. The number of foreclosures we had in those normal years leading up to the pandemic averaged just under 300,000, and so the unfortunate reality is that in this country, every year there are homeowners who do go into the foreclosure process. You know they have a job loss or a challenging financial situation, something happens where homeowners have to give their homes back to their bank or their lender. In 2017 through 2019 that number averaged out to about 290,000. Now if you look at 2020 and 2021, these were not normal years. This is where the forbearance program came into play and there were far fewer foreclosures in each of those years. So if you look at the red bar under 2020, there were 120,000 foreclosures in 2020, that was short 161,000 of what would be normal. 2021 through the third quarter is what we have data for right now, 29,000, so massively short. So that’s where that 422,360 number comes from and contextually, if you think about that, that is incredibly low. In fact it is so low, I think this next graph really shows it well, foreclosure activity is actually at an all-time low. \ https://www.newyorkfed.org/microeconomics/hhdc.html

We have significantly fewer foreclosures today than we would even in a normal year. Obviously, the forbearance program came allowed us to see record low foreclosures in the most recent years.

So, look at 2021. Where we are so far, there are 151,000 foreclosure filings. Now we never want any one home owner to go through the foreclosure process, we certainly don’t want that to happen. We believe in homeownership and the value that the brings everyone, but if you put this into context and you look at 2007 to 2015, millions of homeowners were going into the foreclosure process, and that is vastly different from where we are today. I mean even in this number of 151,000, if it doubles, if it triples, if it quadruples, keeps going, we’re nowhere near where we were when the housing bubble burst, and this is massively impactful, showing that the fundamentals of today’s market are just very, very different today. https://www.attomdata.com/news/market-trends/foreclosures/attom-year-end-2021-u-s-foreclosure-market-report/

Foreclosure activity is at an all-time low. We are at 151,000 foreclosures, whereas in 2007 to 2015, millions of homeowners were going into the foreclosure process. Even if this number of 151,000 doubled, tripled, or even quadrupled, we would be nowhere near where we were when the housing bubble burst.

We may see a little bit of an uptick in foreclosure rates in 2022. Just an uptick though, from an extraordinarily low level, we’re not expecting to see a big increase... We expect delinquency rates overall on home mortgages to actually continue to remain quite, quite low. Maiclaire Bolton-Smith, Senior Leader of Research, CoreLogic
405 closed sales, $273,382 average sales price, 1069 active inventory, 570 new listings, 383 pending sales

When mortgage forbearance plans were first announced and the pandemic surged through the country in early 2020, many homeowners were allowed to pause their mortgage payments. Some analysts were concerned that once the forbearance program ended, the housing market would experience a wave of foreclosures like what happened after the housing bubble 15 years ago.

Here’s a look at why that isn’t the case.

1. There Are Fewer Homeowners in Trouble This Time

After the last housing crash, over nine million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank. Many believed millions of homeowners would face the same fate again this time.

However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The latest data from the Mortgage Bankers Association (MBA) studies how people exited the forbearance program from June 2020 to November 2021.

Here are those findings:

38.6% left the program paid in full
44% negotiated work-out repayment plans
0.6% sold as a short sale or did a deed-in-lieu
16.8% left the program still in trouble and without a loss mitigation plan in place

2. Those Left in the Program Can Still Negotiate a Repayment Plan

As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a suitable plan with the servicing company that represents their lender. And the servicing companies are under pressure to do just that by both federal and state agencies.

Rick Sharga, Executive Vice President at RealtyTrac, says in a recent tweet:

“The [Consumer Financial Protection Bureau] and state [Attorneys General] look like they’re adopting a ‘zero tolerance’ approach to mortgage servicing enforcement. Likely that this will limit #foreclosure activity for a good part of 2022, while servicers explore all possible loss [mitigation] options.”

For more information, read the warning issued by the Attorney General of New York State.

3. Most Homeowners Have More Than Enough Equity To Sell Their Homes

For those who can’t negotiate a solution and the 16.8% who left the forbearance program without a work-out, many will have enough equity to sell their homes and leave the closing with cash instead of facing foreclosures.

Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home. As Frank Martell, President & CEO of CoreLogic, explains:

“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”

4. There Have Been Far Fewer Foreclosures Over the Last Two Years

One of the seldom-reported benefits of the forbearance program was that it allowed households experiencing financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. That prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available. Otherwise, the real estate market would have had to absorb those foreclosures. Here’s a graph depicting this data:

There Won’t Be a Wave of Foreclosures in the Housing Market | MyKCM

5. The Current Market Can Easily Absorb Over a Million New Listings

When foreclosures hit the market in 2008, they added to the oversupply of houses that were already for sale. That resulted in over a nine-month supply of listings, and anything over a six-month supply can cause prices to depreciate.

It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:

“Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.”

A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.

The end of the forbearance plan will not cause any upheaval in the housing market. Sharga puts it best:

“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect. . . .”

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