The novel coronavirus (COVID-19) response continues to test the housing market in new ways. As the economy reels from closings and the other effects of shelter-in-place orders, incomes are being lost at unprecedented rates, and for many, housing payments are unable to be met.

Nationally, 7% of mortgages in servicers’ portfolios were in forbearance as of April 19, 2020, according to the Mortgage Bankers Association (MBA). These homeowners in forbearance are unable to make their mortgage payments.  Their servicers agree to temporarily forego an exercise of their rights to pursue foreclosure while the homeowner takes steps to bring the mortgage current.

The share of mortgages in forbearance in mid-April was:

  • 5% for mortgages guaranteed by Fannie Mae or Freddie Mac; and
  • 10% for mortgages insurance or guaranteed by;
    • the Federal Housing Administration (FHA);
    • the U.S. Department of Veterans Affairs (VA); and
    • Ginnie Mae.

The 7% of mortgages in forbearance — translated to 3.5 million homes — was a significant jump from the 0.25% in forbearance at the beginning of March 2020. According to the MBA, forbearance requests have increased 100-fold over this 7-week period.

Homeowners aren’t alone in their struggle to make housing payments. 69% of U.S. renters paid full or partial rent by the end of the first week of April, according to the National Multifamily Housing Council (NMHC). This was down 12 percentage points from 81% who paid their rent by the end of the first week of March.

However, the good news is that by the end of April, 92% of renters were able to pay rent. This was down from 95% in the prior month.

The NMHC cautions that many renters have drawn on savings to make their April rents.

This is just the beginning

Here in California, 3.5 million jobless claims have been submitted from mid-March through the end of April. This amounts to roughly 18% of the state’s total workforce.

The rates of forbearance and missed rent are not yet that high. But they will continue to rise as job losses linger and grow. Without a massive employment program boost — from the government, the employer of last resort — today’s job losses will fall to depths and lengths longer even than occurred following the 2008 recession.

Along with steep job losses, home sales volume is declining. Without outside intervention, home prices will soon drop, too.

Homeowners who see the equity in their home disappear as property values diminish are more likely to throw in the towel when the financial stress occurs. As home values deteriorate in response to drastically reduced sales volume, expect more distressed sales to occur in 2021-2022.

Real estate professionals who plan to survive the swiftly approaching recession need to prepare now for the coming wave of distressed properties.

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