Despite a record year of feverish market activity, the real estate market could get a dose of reality in 2022. A post-pandemic return to normalcy will likely be highlighted with its share of ups and downs as price gains slow , mortgage rates rise and the impact of government intervention diminishes.
According to recent reports from ATTOM Solutions, the market hasn’t had to wait long to see foreclosure activity resume since the moratorium was lifted in July. According to the report, notices of default, scheduled auctions or bank foreclosures soared 34% in the third quarter of this year.
Experts say the rise will likely continue well into the new year after nearly a year and a half of foreclosure moratorium.
“Foreclosure starts are very likely to increase over the next six months to a year, with the increase ranging from a tick to a torrent,” says Todd Teta, chief product officer at ATTOM Solutions.
The jury is still out on the scope of the next foreclosure spike, but much of that will depend on how lenders choose to deal with troubled borrowers who are behind on their payments.
In previous interviews we conducted, financial institutions told RISMedia that they would try to work with borrowers after the moratorium ends, and that still appears to be the case, according to a recent statement from Wells Fargo.
“Wells Fargo is here to help homeowners when their payment suspensions come to an end, and we’re reaching out to engage with our customers through email, letters and phone,” a Wells Fargo spokesperson said, adding that the bank has stopped everything. foreclosure-related activities on properties occupied until the end of 2021, except in special cases.
“In most cases, customers who were current on their monthly mortgage payments or home equity when the suspension of payments began and who are ready to resume those payments may be able to defer missed payments. at the end of the term of the existing loan,” the spokesperson said. keep on going. “Customers will need to call us to discuss the potential movement of payments to the end of the term or to review other program options to make up for missed payments.”
Additional safeguards have also been put in place by the Consumer Financial Protection Bureau (CFPB) to help borrowers transition to making payments again. The new rules essentially guide lenders on how they should approach and work with borrowers to avoid foreclosures.
The CFPB rules came into effect on August 31 and will last until the end of 2021.
According to Mary Ellen Graziano, senior vice president of William Raveis Mortgage, lenders taking action against borrowers may also depend on homeowners being late.
“I think the first properties they’re going to look at are the abandoned ones,” she says. “Others will likely work with borrowers and see if they can come up with a payment plan and maybe even adjust loan terms.”
Despite the measures taken to prevent foreclosures, an increase in foreclosure activity will inevitably result from the current circumstances.
According to recent reports from Black Knight Inc., forbearance volumes continue to decline, with the number of active plans related to COVID-19 falling below 1.6 million in September.
While mortgage delinquency rates showed signs of improvement in August, Black Knight also noted that serious delinquencies – borrowers more than 90 days in arrears – are still around triple their pre-Central levels. pandemic.
However, according to Black Knight, a silver lining is that delinquencies are on track to return to pre-COVID levels by early 2022.
Memory of 2008
A sustained spike in foreclosures is a heartbreaking prognosis, especially for history buffs who remember the last recession.
According to Teta, foreclosures will likely show up first in poorer areas, where homeowners are more likely to be in financial difficulty and less likely to have the money to make deals with lenders.
“This will likely lead to some increase in zombie properties, which can generate blight and detract from the attractiveness of neighborhoods where they pop up,” he says, noting that these types of foreclosures can serve as a leading indicator of strength. of the housing market.
“Few measures of force have stood out more in recent years than zombie properties, or lack thereof,” Teta continues.
Zombie properties account for one in 13,100 homes in the United States, according to recent reports from ATTOM Solutions. This is a huge improvement from 10,300 just two years ago, Teta says, adding that the stock was higher after the Great Recession.
“That’s a far cry from what happened when home values plummeted after the last recession and many homeowners gave up on mortgages they couldn’t afford or didn’t want to pay anymore,” Teta says.
According to Danielle Hale, chief economist at realtor.com®, the impending wave of foreclosures is not shaping up to be the deathblow to the industry that economists predicted in 2020.
“When people hear that, they rightly think back to the last time we had a bunch of foreclosures, it impacted the housing market,” Hale says. “I don’t think we’re going to see anything like that.”
Eric Spotswood, regional mortgage manager at Prosperity Home Mortgage, echoed similar sentiments, noting the differences between the two eras.
Looking back to 2008, Spotswood notes that a mix of excessive construction and a lack of equity contributed to the market slowdown as borrowers found themselves upside down in their mortgages.
While the COVID-19 pandemic caused a recession in 2020 and a temporary lull in the market, circumstances are essentially reversed in today’s market, according to Spotswood.
“Even if someone has to do a fire sale to get out of their house, people have more equity in homes than at any point in history, and they could do it,” said Spotwood. “The flexibility of borrowers who are in homes that may be in a position where they can’t afford it puts them at a point of strength.”
Brokers agree that a rise in foreclosed properties on the market, which is always in desperate need of new inventory nationwide, could provide a much-needed injection of affordable housing.
Rei Mesa, CEO of Berkshire Hathaway HomeServices Florida Properties, doesn’t find the forecast alarming for her market, which still needs an injection of inventory.
“I don’t see that as a problem, and in fact I would see it as an opportunity for buyers to be able to buy properties because there’s a lot of competition for very few listings,” Mesa says.
Based on third quarter data reported by ATTOM, Florida was among the list of states with the highest rate of foreclosures, with more than one in 2,000 properties in the foreclosure process.
The state also recorded a high rate of foreclosures completed during the same period.
With the volume of demand, Mesa expects any new listings to be absorbed quickly.
According to Candace Adams, CEO and President of Berkshire Hathaway HomeServices New England, Westchester & New York Properties, the same is true for Northeast markets.
“You have nine or 10 listings per property, and our current inventory is about 23% lower than last year,” Adams says. “We know that in the state of Connecticut we have less than two months’ supply, so hopefully we’ll have seizures because they’ll be consumed in about two seconds because the buyers are still there.”
Yuri Blanco, broker/owner of RE/MAX Executives, echoed similar sentiments for the Boise, Idaho market. According to Blanco, the market continues to see an inbound migration of buyers fueling demand.
“They’re still interested in buying, but just haven’t been able to lock anything in yet,” Blanco says. “I think once these hit the market there will be buyers to take advantage of these prices, which are usually at a fairly fair market value.”
However, the opportunity does not lie solely with buyers. Mesa also points out that agents are likely to improve their business prospects in the months and years to come if they are prepared.
Part of this preparation includes honing training and certifications that stand out from lenders and banks.
“Once the banks repossess the properties, they will use the real estate agents that lenders are used to working with or who have already been approved to handle the listings,” Mesa says.
He notes that courses to improve understanding of how to work with the bank, borrower and potential buyer could be a boon for agents looking to capitalize on an influx of foreclosed properties.
Demand for continuing education on short selling and foreclosures is already showing signs of increasing, according to Tina Lapp, head of local brands for Colibri Group and former president of Colibri’s Hondros College.
“We regularly quiz our students on topics that interest them, and we see that those topics are starting to become more in demand than they have been in recent years,” Lapp says, adding that Colibri offers courses on a mix of “hot topics impacting today’s real estate market.
“Our course demand follows the market, which is great to see that real estate professionals are highly motivated to learn the skills that support their buyers and sellers,” continues Lapp. “We are starting to see a slight increase in demand for topics related to short sales and foreclosures, but certainly not up to what we experienced in 2007-2009.”
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