2020 was a wild year for the real estate market. The COVID-19 pandemic has affected so many aspects of our society, and real estate was certainly no exception. Along with rising home prices and low mortgage rates, some of the defining themes from this past year have been recording low housing inventory, mortgage forbearance and the foreclosure moratorium. Right after his inauguration, Biden got straight to work requesting federal agencies to extend eviction and foreclosure moratoriums nationwide among dozens of other executive orders since taking office.
The current US housing supply is only at 2.3 months (Washington Post, 2021). This means if no more houses were listed for sale, all current listings would be sold in about 2.3 months. This is less than half of what would be considered a balanced market of 6 months of inventory. One of the reasons for the low housing supply is the fact that mortgage rates are at the lowest in years, with experts saying that they will likely continue to stay low throughout 2021. Low rates, make borrowing money cheaper, and in turn, increases the demand to buy. High demand coupled with a low inventory, causes home prices to skyrocket.
At the same time, COVID-19’s economic impact has caused 2.7 million, or 5.5% of all mortgages in the US to be in forbearance programs as of Jan. 3rd (Reuters, 2021). While this is lower than the peak of 8.6% in June, it still represents a shockingly large amount of mortgages where homeowners are unable to make their payments. What is particularly worrisome is that the homeowners who continue to be in forbearance may be more likely to be in distress as many have been unable to make their mortgage payments for months on end.
Furthermore, the foreclosure moratorium was originally issued on Sept. 4th to help reduce the spread of COVID-19 by reducing homelessness. It has recently been extended until at least March 31st, by the Biden administration (Miami Herald, 2021). This is not the first time it has been extended. In fact, before leaving office, Trump extended the original moratorium that was set to expire on Dec. 31st until Jan. 31st. The question now is: What will happen after March 31st? It is possible that there could be another extension. If so, we will probably continue to experience a low housing inventory. However, if the moratorium does not get another extension in March, we could possibly see millions of foreclosures hit the market in the following months.
This potential increase in supply may cause housing prices to flatten out or even decrease in the months after the expiration of the foreclosure moratorium. Furthermore, it may also provide prospective homeowners and investors more opportunities to find deals, which have been increasingly difficult in many competitive markets. To keep up to date with real estate-related news, and to learn more about real estate investing check out more blog posts and podcasts at https://bulletproofcashflow.com/.