How the End of Covid Forbearance May Impact the Housing Market

covid forbearance impact on housing market

When the Covid-19 pandemic hit the United States, lawmakers knew that steps needed to be taken very quickly to allay the effects that a massive economic shutdown would have on the financial health of American citizens. As a result, the US Government set up a mortgage forbearance program for homeowners who would inevitably struggle to make timely mortgage payments due to those shutdowns. Over the months, this forbearance program reached a peak of over 1.6 million American homeowners enrolled in the program. Now, the first wave of those applicants is coming up on the end of their 18-month forbearance terms.

Whisperings of a Supply Shock

Some economists and market analysts believe that the end of Covid Forbearance may signal an impending “supply shock” — that is to say, a large amount of houses would suddenly be available in the market due to foreclosures. After all, if a homeowner is unable to afford their monthly mortgage payments throughout forbearance, it stands to reason that they wouldn’t be able to suddenly begin making payments again at the end of the program.

However, homeowners do have options available beyond allowing the bank to foreclose on them. For example, many homeowners can draw cash out of the value of their homes by refinancing their current mortgage, which could give these people enough cash to pay the mortgage for several months. Others may be able to work out payment plans with creditors, while still others may choose to sell their homes all together to avoid making payments.

In addition, the Consumer Financial Protection Bureau issued a rule that requires loan servicers to follow three steps to avoid foreclosure.

Will a Supply Shock Hit the Housing Market in 2021 or 2022?

Given all of the information outlined above, it certainly appears that there’s a possibility of a supply shock to some degree. Between the foreclosures that likely will happen and home sales that will occur on the part of homeowners seeking to get out of their current mortgages, we do expect to see some cooling down on prices in the market as more supply becomes available. Of course, this presents a great buying opportunity for real estate investors looking to fix & flip properties or acquire turnkey rentals.

Even if all of these 1.6 million homes were to suddenly be up for sale tomorrow though, there would still be a gap between the supply and demand for new homes. In September of this year, a study revealed that the US was short 5.4 million homes against demand. With rising costs of building materials, it’s been difficult for new home builders to fill the supply gap. With all factors considered, while this “shock” may put a damper on the white hot housing market, it doesn’t seem likely that it will cause the market to crumble.

What to Watch for in Your Area

Depending on where you live, the housing market may not see any effects of a supply shock at all. It will be important to keep track of home listings and see if prices are rising, falling, or mostly staying the same. Despite the uncertainty of what the broader market will do, however, there will certainly be great deals to be found — they just might be more difficult to find than usual.

Whenever you do find one of those great deals that you can’t pass up, Pimlico Capital will be here to help fund your project! Whether you’re acquiring a turnkey rental, fixing and flipping, or refinancing, we can help out every step of the way. For a quick, free, no obligation quote, simply head over to our rate calculator and see what financing options you qualify for. No matter what happens with the real estate market in coming weeks and months, we’ll be here to offer expert advice and guidance.