U.S. Housing Market Faces A ‘Shock’ Ahead

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US housing market faces shock

Pandemic policies have surely shaped the way the U.S. housing market has functioned. More than 7 million American homeowners were enrolled in the mortgage forbearance program at the height of the pandemic. There are now nearly 2 million borrowers that are currently still enrolled. But – that number will soon be zero.

The Biden administration has said that beginning in October, they will let the forbearance program lapse. This could be a pretty big deal for those 1.7 million borrows who remain enrolled. Borrowers will not all be removed all at once, rather, they will phase out over the next few months.

Many of these homeowners might opt to sell (or be forced to sell) their property while they believe the market is still hot. However, if short supply was the main reason for the 17.2% increase in home prices over the last year, then this could have a noticeable impact on the housing market.

“In a nation of more than 80 million homeowners, 1.7 million might not sound like a lot—until you consider there are just over 600,000 homes for sale right now on realtor.com. In fact, this year housing inventory hit a 40-year low. So, if even a small percentage of these 1.7 million struggling borrowers opt to sell—rather than returning to their monthly payments—it could cause a shock in the housing market.” – Lance Lambert, Fortune

1.7 million borrowers in a nation of more than 80 million homeowners might sound like a drop in the bucket… until you consider the fact that there are only about 600k homes for sale right now according to realtor.com. If even just a small amount of these struggling borrowers opt to sell – it could cause the U.S. housing market to head for a shock.

Chart: Lance Lambert – Fortune • Source: Realtor.com

While the ending of the forbearance program could cause some shifts in the housing market, experts are not sounding the alarm for a possible crash or bubble.

“Historically, a gut check of a housing bubble is the home-price-to-income ratio. While home prices appear high compared with incomes, this does not account for interest rates. When we look at the home-payment-to-income ratio, an important measure of affordability, levels are below last cycle, showing the power of cheap financing. Further, safety measures have been put in place since the Great Recession to help prevent a similar housing collapse. Mortgage credit availability is starkly tighter than in the mid-2000s and the often more risky adjustable rate mortgages represent less than 5% of total purchase and refinanced loans compared with over 35% at the peak of the last cycle.” – Ali Wolf, Fortune

While the housing market might start to see small shocks ahead with the forbearance program ending next month, lenders have strict guidelines they are required to follow, and a sharp increase in foreclosures does not appear to be likely.

Danielle Repasky

Danielle Repasky

Dani is a passionate, cross-functional, creative, and results-driven marketing and design professional with over 8 years of experience across multiple platforms including websites, email, mobile applications, and web applications. She is a firm believer that data should drive decisions, but with creativity to support it.

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