Something Big Is About To Happen In The Housing Market

A crash in the housing market seemed inevitable during the early weeks of the COVID-19 recession. However, that bust didn't come to fruition, in fact, the opposite happened: A combination of government support, recession-induced low-interest rates, and eager homebuyers set off a housing boom. Since the onset of the crisis, median home prices are up a staggering 24%.

But much of that government aid and support is about to go away. The foreclosure moratorium, which prevents foreclosures of federally-backed mortgages, will come to an end on July 31. Then on Sept. 30, the mortgage forbearance program, which allows some borrowers to pause their payments, will lapse. Since the beginning of the pandemic, over 7 million homeowners have been enrolled in the forbearance program. However, as the economy has improved that number has fallen. As of July 11, there are still 1.75 million borrowers, or 3.5% of U.S. mortgages, enrolled in the forbearance program.

If even a small fraction of the 1.75 million homeowners currently protected by the mortgage forbearance program opt to sell instead of going back to repaying their mortgage, it could have a big impact on the historically tight housing market. According to the National Association of Realtors, there are only 1.37 million units currently available for sale. Over the past four decades, the U.S. has averaged 2.5 million units at any given time. This year, housing inventory hit its lowest level since the data started getting tracked in the '80s.

"High positive home equity among delinquent homeowners results in lower likelihood of foreclosure since people can refinance or sell the home to avoid defaulting on their mortgage," says Nik Shah, CEO of Home.LLC. Those who do choose to sell are unlikely to shift the market. The forecasted uptick in inventory, he says, "isn't much given that inventory is at a 40-year low. So, we project that home prices will continue to grow rapidly even if the forbearance program ends."