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  • Writer's pictureMercedes Shaffer

Will Forbearance Lead To Foreclosure?

By Mercedes Shaffer l Published In Apartment News Magazine

(Article on P 26)

The market has been so hot for so long that it makes sense that what goes up must come down. Given historic economic cycles, the housing market is overdue for a correction, so when are prices going to drop? Well, they may not…

When the pandemic hit in 2020 and the world was in lockdown, banks offered forbearances to borrowers so that they could avoid defaulting on their loans. Nearly 8.3 million Americans took advantage of the opportunity to defer payments, weather they needed to or not, and entered into forbearance.

This meant that homeowners got to postpone paying their mortgage bill for a period of time, which in turn freed up capital for spending. At the same time, the government was printing money and handing out stimulus checks, so people had even more money to spend. The rampant spending contributed to the massive inflation we’ve been experiencing and it seemed as though American’s were growing accustomed to a new lifestyle that wouldn’t be sustainable once loan forbearances were over.

Now that the market has digested all of the changes from the pandemic, the data is showing that currently there are only 513,000 people in forbearance across America and the number is continuing to drop. This means that 94% of homeowners have exited forbearance.

Of the 7.7 Million Americans who exited forbearance, a total of 2.7 Million Americans completely removed or paid off their forbearance and 4.3 Million are performing – meaning that they either did a workout loan and are paying it off in an installment plan, or they deferred it to the end of their loan.

Nationally, a total of 10% of those in forbearance are delinquent and of those who are delinquent, 1% are in foreclosure. In Orange County, distressed homes, both short sales and foreclosures combined, made up only 0.2% of all listings. There were only 4 foreclosures and 3 short sales available to purchase in November in all of Orange County and there’s no indication that the number will be rising.

Foreclosures were important drivers of previous housing price corrections, like in the 1990’s and 2008. The reality is that most loans have been made whole and there is no foreseeable tidal wave of foreclosures about to hit the market. While many buyers are waiting for a market crash, there has only been a slight softening of the market due to high interest rates. In many markets, especially coastal, the softening has meant more days on market, not a drop in property prices.

Furthermore, 40% of American own their homes free and clear. Of the remaining 60% who have a loan, most have an interest rate of 4% or lower, so they are going to hold onto that low mortgage rate for as long as possible and not sell if they don’t need to, until interest rates come down again.

While there are a lot of headlines about impending housing market crash, you can’t lump Orange County into the generic category of the entire housing market. The Orange County market is strong and people have a lot of equity in their homes. It’s also a market that is attracting a lot of out-of-state and international buyers. Almost 50% of luxury homes are purchased by out of state residents and Orange County is attracting buyers who want to enjoy the incredible weather, safety and great lifestyle that OC has to offer.

To accommodate the growing appetite of luxury buyers who want to own a piece of OC, more high-end homes are being built here than ever before. In 2022, 19 homes sold for over $20 million dollars and 5 years ago only 4 homes sold for over $20 million dollars. These ultra-luxury properties are bringing up the overall price of the housing market as the ultra-wealthy vote with their assets by invest in the OC.

The same forces are affecting rental housing. Interestingly, buyers who are waiting for the housing market to crash are sitting on the sidelines renting. The rental market is seeing demand continue to rise. This is good news for investors looking to buy rental property, because there is far more demand than supply. It’s also great news for sellers, because we still have record low inventory and there’s a line of buyers wanting to own a slice of the OC.

These forces may leave housing buyers who are waiting for a crash, waiting a very long time. Timing the market is difficult, and Orange County has the geography and political climate that are likely to sustain the value of our real estate. Let’s keep OC an amazing place to live and build community and wealth together!

If you would like to have a conversation about creating a personalized strategy for buying, selling or doing a 1031 Exchange, I can be reached by phone at 714.330.9999, by email at or visit my website at Mercedes Shaffer is a real estate agent with Coldwell Banker and specializes in helping clients buy and sell real estate and perform 1031 Exchanges. DRE 02114448


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