Are We Headed Towards a Foreclosure Crisis? Probably Not.

If you have spent much time reading the news you likely know that the ongoing COVID-19 Pandemic has resulted in a massive loss of jobs, income, and stability for many Americans. You may also have read some opinions that the hardships people are going through will ultimately result in the foreclosure of a massive number of properties, the likes of which has not been seen since the recession of 2008.

However, the conditions that preceded that crisis are not the same as those we see today. Many Americans at that time participated in cash out refinances of their homes leveraging their homes value against the market. This left many of them high and dry when they ended up owing more on their homes than they were worth.

Today the market has far outpaced that of 2008 and homeowner levels of equity are in abundance. These homeowners would not be upside down in their mortgage in the same manner as those in 2008, which means that rather than face foreclosure they can sell their homes and pocket this equity at the close of sale. This also doesn’t take into account the fact that due to the pandemic the federal government has mandated forbearance on mortgages should homeowners choose to participate. 91% of the homeowners in forbearance have 11% equity in their homes. One can visualize this slice of the mortgage pie as the worst-case scenario, and they still have enough equity to walk away without facing foreclosure.

At the end of this there will still be those who will be foreclosed on, but the economic conditions that led to the mortgage crisis in 2008 are not the same as we see today. The economy should bounce back once COVID is a thing of the past, and jobs should return too. There is seemingly no real estate bubble, and real estate presents one of the more secure investment options outpacing bonds, notes and stocks which have proven extremely volatile throughout the pandemic.