Are we in a housing bubble in Prince William County? What will happen when the moratorium on foreclosures is lifted later this year? Let’s examine our current inventory, level of appreciation nationwide, and the impact that homeowners coming out of forbearance could have on our market.
The previous crash
In the first decade of the 2000s, we experienced a housing bubble that is still fresh in the minds of lots of homeowners. I was upside down on my mortgage for several years back then, along with a lot of other homeowners in the country. It was a scary time and one that no one wants to see be repeated. Before the bubble burst then houses were appreciating at a rapid pace and it seemed that each month the houses in our area were selling for thousands more than the previous month. Buyers were using stated income loans, lenders weren’t verifying income, debt, or assets, and it seemed that everyone could get a loan. Then the crash came and the fallout is what remains on the top of everyone’s minds. Neighborhoods where every other house seemed to have foreclosure notices on the door. Grass that hadn’t been cut in months, houses that were stripped of appliances, flooring, and bathroom tile. Why is it different this time around?
The strength of our current housing market lies with the equity that we’ve gained in the past 12 months
To begin with, let’s examine what a healthy real estate market looks like. A healthy market is defined by the number of months of housing inventory we have available. A healthy market has a 6 month supply of inventory. But right now, nationwide, we have a 1.9 month supply of inventory. When the supply is low, the prices begin to appreciate. Year over year, the average appreciation rate for houses is 3.8%. But in the past 12 months, we have experienced a 10% appreciation rate. What is causing the steep appreciation? Lack of inventory and the basic principles of supply and demand. New home construction is down, existing home sales are down, and buyers are competing for each listing that comes on the market. This drives prices up.
How will this appreciation affect the moratorium on foreclosures?
In the spring of 2020, the federal government was trying to help homeowners who had lost their jobs due to Covid. There was a moratorium placed on foreclosures and by May of 2020, there were 4.7 million homeowners who had entered into a 12-month forbearance plan with their mortgage companies. Many people either didn’t need to use their plan or they became employed again and were able to come off of forbearance. In the first week of February 2021, only 2.7 million mortgages remained in an active forbearance. Of that amount, 87% have a plan to exit forbearance in a positive manner. They will either pay their loans off, they have caught up on missed payments, or they have deferred payments to the end of the loan period. But 13% of people in active forbearance, or about 325,000 households, are still “at risk” of foreclosure.
In comes the equity
In 2009 and 2010, when the market crashed, one in 4 homes was under water. Even if people wanted to sell their homes, they couldn’t. They owed too much money and short sales were difficult. Many people decided they had no other choice than to just walk away from their homes. But this time, things are different. On average, the homeowners in forbearance right now have at least 11% equity in their homes. They have options and alternatives to foreclosure. They can sell their homes, make a small profit, and take advantage of their equity. But they have to get in touch with a Realtor and explore their options. With equity, comes options. Don’t leave any money on the table.
Are we in a housing bubble in Prince William County?
I don’t believe we are. The National Association of Realtors, Fannie Mae, Freddie Mac, and The Mortgage Brokers Association area all predicting a 5% appreciation rate this year. That will bring year-over-year appreciation more in line with the typical 3.8% rate. Even if we were to see a drop in values, most homeowners in Prince William County have enough equity to ride a correction out and not be affected long-term.
What happens when the moratorium on foreclosures is lifted?
Ninety percent of homeowners in forbearance have at least 10% equity in their homes. These homeowners have alternatives to foreclosure if they are proactive and begin to research selling their homes in lieu of foreclosure. This will provide much-needed inventory in our market that will quickly be purchased by qualified buyers. When some homeowners inevitable do to foreclosure, it should not be so many that it will be a flood of foreclosures hitting the market and negatively impacting values.
If you have any questions about how the current market affects you specifically, please let me know. And if you know someone who may be in forbearence and needs to talk about their options, please reach out to me. I am here to serve my community and I’m happy to discuss options! You can reach me at 703-297-1278.
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