Where are the foreclosures?

[dan.johnston]

I’m a long time (8+) years mustachian. Also a residential GC with a small construction company.

Over the last few years we’ve done very well flipping houses or building specs in our area (middle GA). Acquired multiple rentals, lots of investment property etc,etc,etc.

In our county business is booming. Real estate values are going through the roof. Tons of demand, little supply. Lots of reasons for this (best schools south of ATL, good employment opportunities, new demand from people working from home who want to live in the “country”, etc).

I’ve been watching the foreclosure market for years now. On average we seem to have maybe 40 a month in our county that are sold at auction or listed by realtors. We’ve had maybe 5 total hit the market since last May. Obviously this has to do with the moratorium on evictions and foreclosures, but it seems that inevitably a large chunk of properties will hit the market all at once, driving values down and seriously depressing the RE markets. Probably nationwide 

After much debate, we’re leaning towards holding our capital instead of building new specs. We have the land, ability, and opportunity, and looking around this would seem idiotic. But the concern is today’s property demand and valuations vs. demand and valuation in 8 months when the spec houses would be complete and sold.

Anyone else in a similar position with their ear to the ground?

[rab-bit]

We're small-time landlords, always on the lookout for new opportunities, but the same is true in our area (Western PA). The RE market has been very busy and good low-priced rental properties sell quickly with multiple all-cash offers. It seems to be true that we are seeing a K-shaped recovery and the "haves" (vs. "have-nots") are looking to diversify.

[dan.johnston]

Have you noticed that no one is getting foreclosed on in your area? If that is really a nation wide trend, it would mean easily another 2008 scenario if millions of homes are foreclosed on at once when the moratorium expires.

 The last stats I read are that 12% of all home mortgages in the country are past due. Do you think this is the recovery or the call before the storm?

[Paper Chaser]

With home values so high, seems like a "distressed" property owner could just sell? It's hard to be underwater on a home that's seen huge gains in value in recent years.

[rab-bit]

Have you noticed that no one is getting foreclosed on in your area? If that is really a nation wide trend, it would mean easily another 2008 scenario if millions of homes are foreclosed on at once when the moratorium expires.

 The last stats I read are that 12% of all home mortgages in the country are past due. Do you think this is the recovery or the call before the storm?

I would say that the number of foreclosures may be a bit less than normal here, and definitely not more. As to whether it's a precursor to more in the future, I really have no idea.

[dan.johnston]

Well the reason properties go to auction is many times because they’re not in marketable condition. Lenders won’t finance a house that needs significant repairs, or has safety issues. If all the house needs is a trash out and new paint and carpet they’ll hire a property preservation crew to do those things before they put it on the market. But if it’s much more than that they’ll sell it as is at auction and try to recoup the balance owed on the mortgage.

So if the guy that is about to lose his house does not have a chunk of cash or credit to invest in fixing it up he won’t be able to sell it unless he can find someone with cash in hand willing to take on the project.

That exponentially reduces the pool of potential buyers.

[better late]

 The last stats I read are that 12% of all home mortgages in the country are past due. Do you think this is the recovery or the call before the storm?

I would like to learn more about this and foreclosure in general. Can you point me to where you read this?

[poetdereves]

DW and I have our ear to the ground as well. We have still purchased two investment properties since this summer when the restrictions were put in place and are having no trouble renting them out or receiving rent payments. We go back and forth between continuing to buy as things come along or waiting until possible foreclosures in the next couple years. Honestly, we have no clue what will actually happen, but we struggle with choosing to buy now or not since our market already appreciates slowly and buying a home right before a big dip in the market could make getting in a solid renter or selling it for a profit in the future more difficult. Right now, we are going to bank capital for a while and just see what happens. We will hopefully end up having plenty of money to buy if things in the market shift, and if a screaming good deal comes our way that fits our normal criteria before any change in the market we will probably still go for it.

[Paper Chaser]

I just checked my local record of sheriff's sales. The number of properties in my county went from typically being around 18-20 per month in 2018 to being 5 or fewer per month through the pandemic.

BUT, the ones the are up for sale have a much higher percentage of actually selling, and they appear to have some bidding wars because nearly all of them are selling for $10-60k over initial bid (essentially all sub-$200k properties). Being a sheriff's sale, all sales are cash, so it seems like the people (or more often businesses) that do have the cash are snapping up what little inventory is out there.

[theoverlook]

So if the guy that is about to lose his house does not have a chunk of cash or credit to invest in fixing it up he won’t be able to sell it unless he can find someone with cash in hand willing to take on the project.

Except right now the house, even in bad shape, is worth more than this hypothetical guy owes on his mortgage due to the run up in housing prices over the last few years. Coupled to that is that fact that in any decent sized area there are thousands of people hunting for "deals" on real estate. So our subject is late on his mortgage and gets a call from an "investor" who offers to buy the house sight unseen. They get it into contract and shop it around to their "buyer network" and find someone that will take it in as-is condition, and it's sold without ever hitting the open market and without ever getting foreclosed.

My family members get about a half dozen calls a week from these guys. We're annoyed by them but if anyone was in a pinch and couldn't sell their house via traditional means, I bet their call would be welcomed with open arms.

Once things reverse, maybe we'll see a surge in foreclosures. But I don't see it being like 2008, because a lot of the troubled properties are bought up prior to becoming very delinquent.

[dan.johnston]

I just checked my local record of sheriff's sales. The number of properties in my county went from typically being around 18-20 per month in 2018 to being 5 or fewer per month through the pandemic.

BUT, the ones the are up for sale have a much higher percentage of actually selling, and they appear to have some bidding wars because nearly all of them are selling for $10-60k over initial bid (essentially all sub-$200k properties). Being a sheriff's sale, all sales are cash, so it seems like the people (or more often businesses) that do have the cash are snapping up what little inventory is out there.

Good to know. So it looks like where you’re at most of the foreclosures aren’t getting through either. Which would mean there is a backlog waiting to happen. I talked to a realtor friend of mine recently and she said that she’s been getting 15 or so calls a week from different lenders asking her to do a drive by inspection of properties, which is the first step in the lender repossessing the home.

[dan.johnston]

So if the guy that is about to lose his house does not have a chunk of cash or credit to invest in fixing it up he won’t be able to sell it unless he can find someone with cash in hand willing to take on the project.

Except right now the house, even in bad shape, is worth more than this hypothetical guy owes on his mortgage due to the run up in housing prices over the last few years. Coupled to that is that fact that in any decent sized area there are thousands of people hunting for "deals" on real estate. So our subject is late on his mortgage and gets a call from an "investor" who offers to buy the house sight unseen. They get it into contract and shop it around to their "buyer network" and find someone that will take it in as-is condition, and it's sold without ever hitting the open market and without ever getting foreclosed.

My family members get about a half dozen calls a week from these guys. We're annoyed by them but if anyone was in a pinch and couldn't sell their house via traditional means, I bet their call would be welcomed with open arms.

Once things reverse, maybe we'll see a surge in foreclosures. But I don't see it being like 2008, because a lot of the troubled properties are bought up prior to becoming very delinquent.

So you think that the lack of foreclosures is due to sudden higher demand and people’s houses being bought before they’re repossessed? It seems unlikely that the sudden demand would turn on like a switch from one month to the next, and happen to coincide with the cares act provisions that do not allow lenders to take the property back.
Also, once you are in forbearance, selling to any investor is a lot harder.

[jeromedawg]

I am curious about this too. There is some speculation out there echoing the sentiments about how we might see an increase once the forbearance programs end. I'm wondering how many people are actually under water. Things are just nuts right now, and as long as interest rates are the way they are I don't see things letting up. We're currently trying to find something but it's just ridiculous...

[FINate]

Throwing the following in as a different perspective, no idea how good or bad this analysis is:

It seems likely that you're witnessing a local phenomenon (lack of foreclosures) that's a ripple effect of a larger national trend. But what's the larger trend? Sure, maybe it's just mortgage forbearance -- at some level this has to contribute to what you're seeing on the ground. However, this doesn't explain the crazy real estate market across much of the US. I say "much" because it's not at all even across all markets and segments. Rent prices have plummeted in SF, NYC, and other major metros, and look at the moving stats from places like U-Haul and United Van Lines. These are crystal clear market signals that something significant has shifted. What exactly is not entirely clear to me. Though it seems the pandemic was a catalyst that accelerated the effects of work from home along with long simmering quality of life issues in many major metros.

All else being equal, most Americans value high paying jobs, more space, lower cost of living, lower crime, less traffic/commute. Some of these are in tension so people prioritize competing concerns. Cities were the place for high paying jobs, many were willing to prioritize this over other negatives. The pandemic upended this calculus: you could keep your job remotely while paying less for a mortgage than you did on rent, all while having a lot more space and better quality of life.

This isn't true for all people, many genuinely prefer living in cities. Nor do I think this means the death of major metro areas... the danger with this type of analysis is over doing it to arrive at extreme conclusions. Yet I do think there's a large and 'sticky' rebalancing happening. While well priced SFH in major metro areas will continue to sell just fine, multi family is already very weak in these areas and will likely remain so for some time. IMO, any increase in foreclosures will largely be in multi family in major metros.

All this to say, I don't think we're going to see a crash in RE values in rural/suburbs/second-tier cities after the pandemic ends.

[ChpBstrd]

1) The pandemic hit low-wage workers the hardest, and these individuals are more likely to rent. Their misfortune, amidst an eviction moratorium, is felt by landlords, who are probably more likely to pour additional money into a property to wait out a delinquent tenant than attempt to sell with a delinquent tenant in place. Eventually, the landlords might run out of money, but refinancing at lower interest rates may have extended this process. Factors #2 and #3 also helped...

2) A large percentage of foreclosures are done on employed people with bad money management skills. They used to spend all their cash on restaurant meals, vacations, bars, clubs, movies, etc. and then start missing house payments. Now that these avenues of financial waste have been cut off, they are forced to save more which means they have more money for the house payment. The personal savings rate went through the roof in 2020: https://fred.stlouisfed.org/series/PSAVERT

3) $1800 in helicopter money per person during 2020 certainly made the difference in keeping many people current on rent/payments. Another payment is possible in 2021, and I would expect that to be the last.

4) The foreclosure process usually takes at least a year before the property appears on the market - in some places 3 years. We're now seeing houses on the market that first went delinquent in 2019, a time of <4% unemployment. https://www.foxbusiness.com/real-estate/how-long-home-foreclosure-take

Overall, I think the 2nd half of 2021 will see bars, restaurants, and travel opportunities open up, the end of helicopter money stimulus, and the end of eviction/foreclosure moratoriums. In 2022 we'll see the full brunt of the pandemic foreclosures. This is priced into mortgage REITs like MORT.

OP, I think you should be able to get in another round of projects in the next 12 months. Another buying frenzy could ensure if people think mortgage rates are about to rise. By then some fixer uppers should start appearing on the market.

[theoverlook]

So you think that the lack of foreclosures is due to sudden higher demand and people’s houses being bought before they’re repossessed? It seems unlikely that the sudden demand would turn on like a switch from one month to the next, and happen to coincide with the cares act provisions that do not allow lenders to take the property back.
Also, once you are in forbearance, selling to any investor is a lot harder.

No, my thought was that the demand was already there and may be just being met more - with the increase in house sale prices the lowball offers from investors are now more than people's mortgage balance.

[dan.johnston]

1) The pandemic hit low-wage workers the hardest, and these individuals are more likely to rent. Their misfortune, amidst an eviction moratorium, is felt by landlords, who are probably more likely to pour additional money into a property to wait out a delinquent tenant than attempt to sell with a delinquent tenant in place. Eventually, the landlords might run out of money, but refinancing at lower interest rates may have extended this process. Factors #2 and #3 also helped...

2) A large percentage of foreclosures are done on employed people with bad money management skills. They used to spend all their cash on restaurant meals, vacations, bars, clubs, movies, etc. and then start missing house payments. Now that these avenues of financial waste have been cut off, they are forced to save more which means they have more money for the house payment. The personal savings rate went through the roof in 2020: https://fred.stlouisfed.org/series/PSAVERT

3) $1800 in helicopter money per person during 2020 certainly made the difference in keeping many people current on rent/payments. Another payment is possible in 2021, and I would expect that to be the last.

4) The foreclosure process usually takes at least a year before the property appears on the market - in some places 3 years. We're now seeing houses on the market that first went delinquent in 2019, a time of <4% unemployment. https://www.foxbusiness.com/real-estate/how-long-home-foreclosure-take

Overall, I think the 2nd half of 2021 will see bars, restaurants, and travel opportunities open up, the end of helicopter money stimulus, and the end of eviction/foreclosure moratoriums. In 2022 we'll see the full brunt of the pandemic foreclosures. This is priced into mortgage REITs like MORT.

OP, I think you should be able to get in another round of projects in the next 12 months. Another buying frenzy could ensure if people think mortgage rates are about to rise. By then some fixer uppers should start appearing on the market.

I appreciate your perspective. I had been thinking we’re near the one year mark from the highest point of delinquencies, but you’re probably right... those foreclosure processes are only now getting started with the expiration of the moratoriums, and probably won’t hit for yet another year.

That’s been the core question. Do we have time for another round of houses without incurring too much risk?We started RE investment not long after the last housing crash, and have a very clear memory of all the builders and investors that miscalculated and went bankrupt, and the half developed and abandoned subdivisions. Sometimes I feel like that weighs too heavily in our decisions and so wanted an outside perspective.

[Blindsquirrel]

 To the OP, Same, same. We have been landlords/flippers for 20 years and run 40 units mostly SFR on South west Ohio.  Rent demand is still very strong with very few non paying tenants and help with rent is available. We let a (long term tenant 11 years) slide a few months but assistance program paid the 2 month missed.

   Demand for SFR is off the chain and has gone national. I get calls/texts/emails from wholesalers in TX, NY, NC, and CA for deals in my backyard. The dirt cheap cash available and the sky high valuations of the SP500 I think have really juiced interest in investment RE. There are tons of folks doing short sales/ Deed in Lieu deals so that may well depress the foreclosure numbers. Absolutely crappy houses are going for a pretty good amount on MLS as the demand is very, very high. Paid 107k for a house that 2 years ago would have gone for 60k 18-24 months ago and it is still a decent deal.

  Bonus though is I have sold 2 houses in last 2 months.  and paid not a dime in commission and I got more than I was looking for  and I had contracts in a couple days.

[ChpBstrd]

To the OP, Same, same. We have been landlords/flippers for 20 years and run 40 units mostly SFR on South west Ohio.  Rent demand is still very strong with very few non paying tenants and help with rent is available. We let a (long term tenant 11 years) slide a few months but assistance program paid the 2 month missed.

   Demand for SFR is off the chain and has gone national. I get calls/texts/emails from wholesalers in TX, NY, NC, and CA for deals in my backyard. The dirt cheap cash available and the sky high valuations of the SP500 I think have really juiced interest in investment RE. There are tons of folks doing short sales/ Deed in Lieu deals so that may well depress the foreclosure numbers. Absolutely crappy houses are going for a pretty good amount on MLS as the demand is very, very high. Paid 107k for a house that 2 years ago would have gone for 60k 18-24 months ago and it is still a decent deal.

  Bonus though is I have sold 2 houses in last 2 months.  and paid not a dime in commission and I got more than I was looking for  and I had contracts in a couple days.

This report from the front lines sounds a LOT different than 2008, when people were fleeing real estate and unable to sell. It makes me wonder whether mortgage REITs are getting a bad rap right now.

Mortgages and fossil fuels are about the only 2 sectors that have not yet recovered. In the case of mortgages, we can only assume the market is bracing for a wave of foreclosures. But if your report generalizes across the US, that wave may never come. Out of work people will have quickly sold their homes and moved in with relatives, and landlords aren't facing the wall of delinquencies everyone thinks they are.

Mortgage REITs might be a good deal right now, because a large increase in delinquencies is priced in.

[Blindsquirrel]

   The real crater for RE around here was 2010. Had I been smart we would have gone nuts instead of seriously. Houses I passed on at 25k in 2010 go for 140k in my neck of the woods and a 125k house appraised at 450k. The mortgage REITS do stunning when rates are dropping but they really do not have much room to fall. The problem with mortgage REITS  right now is there is a whole bunch of commercial paper that is  garbage right now in the retail/office/mall space right now due to COVID.  Nobody is filing foreclosure in commercial space right now as that makes the note junk level instantly.  Probably not at the 2007 level of bullshit but not convinced it is not much worse now systemically.  Work from home may have accelerated with Covid greatly.

[jeromedawg]

   The real crater for RE around here was 2010. Had I been smart we would have gone nuts instead of seriously. Houses I passed on at 25k in 2010 go for 140k in my neck of the woods and a 125k house appraised at 450k.

I feel your pain. This is the year my wife and I were married and we weren't even thinking about buying a home then. I wasn't paying attention to the news and probably barely realized what was going on (the Honeymoon phase is real I guess LOL). Wish we would have snapped up at least one home back then.... shoulda coulda woulda smh. Actually, we did kind of look around a bit between 2011-2013 but never ended up committing because we were just being too picky about things. Another stupid move that could have put us in an even better position in the long-run.

[Blindsquirrel]

  @jeromedawg  Understand, we went from 15 to 40 in that span and we passed on more than we took on, we sold a bunch of flips that had I had a crystal ball we would have kept. That said, the flips paid off every single dime we owed so not complaining a bit. I feel kinda bad for folks buying houses now but not all that long ago (time flies) I was geeked to refi houses at 8% interest.  Houses have gotten very expensive but unfortunately, college went through the GD roof in that time. That is a brutal double whammy on younger families.  The USA needs to not saddle young people with giant debt loads for education. Yes, can do better by not being a consumer sucker but college costs has blasted so far above inflation increase it is nuts.  That said, a fixed rate 30 year mortgage is a pretty good synthetic short on the US dollar (rates are below historical inflation rates) and chances are that SFR housing is not the worst investment you can make. If nothing else, it insulates you from a brutal rental market.

[dan.johnston]

Yeah, I’m with you there. If I had a crystal ball I wouldn’t have sold almost any of the flips we did over the last 4 years. But they did pay all the rentals off, so there’s that. I started buying land last year since there were so few house opportunities. It’s worked out pretty good so far, buying large tracts and subdividing them

[Mr. Green]

Where I live the RE market is so hot that investors are snapping up most of the trashed homes before they can even hit the foreclosure market. Everyone is a flipper right now. The low interest rate environment has aided this by allowing home prices to rise considerably. The price of lumber doubling is also pushing new home prices higher, and that is dragging the existing homes market with it by association.

[rab-bit]

We just put in an offer on a house yesterday for 88% of asking price, all cash, 30-day close and we probably won't get it. It's been on the market for 2 days and ours was the first offer, but one other came in right after ours, and there are at least three more showings today, after which they said they will decide. We might be willing to go as high as 94% of the asking price, but even that probably won't get it done.

Our agent just listed another house in the area and said she has 22 showings scheduled for Saturday!

[waltworks]

LOL, offering below asking?

I don't think you are going to get any houses anytime soon with that strategy.

On the original question, I think we'll get some form of national level support for renters/owners/landlords that will mostly prevent another foreclosure crisis. Nobody is willing to let that happen again. Whether that's a good idea in the longer term is beyond my pay grade, but I'm not expecting great RE deals to start falling from the sky like in 2010.

-W

[rab-bit]

LOL, offering below asking?

I don't think you are going to get any houses anytime soon with that strategy.

On the original question, I think we'll get some form of national level support for renters/owners/landlords that will mostly prevent another foreclosure crisis. Nobody is willing to let that happen again. Whether that's a good idea in the longer term is beyond my pay grade, but I'm not expecting great RE deals to start falling from the sky like in 2010.

-W

Well, that really depends on how high their asking price is relative to true market value, right? Recent comps in that neighborhood have sold for ~91% of the asking price of the house that we offered on, so it doesn't seem impossible to me, but as I said, I recognize that there is a good chance that we won't get it.

[waltworks]

Off topic here, but the better strategy (you can debate the ethics of this) is to offer *more* than what you're willing to pay, get the seller locked up, and negotiate VERY hard on repairs/anything that comes up on inspection. You can always walk if they won't go for it.

In our ($2 million+ houses) neighborhood there were so few houses for sale this summer (right now there's _1_) that when something came on the market it would immediately get multiple over-asking all-cash offers from very wealthy buyers sight unseen. Then they would walk if they decided they didn't like the house. So now sellers are requiring huge non-refundable earnest money deposits - a buddy just sold his place and if the buyer had decided to walk for *any reason* they would have lost their $200k earnest money...

Crazy, crazy.

-W

[ChpBstrd]

Off topic here, but the better strategy (you can debate the ethics of this) is to offer *more* than what you're willing to pay, get the seller locked up, and negotiate VERY hard on repairs/anything that comes up on inspection. You can always walk if they won't go for it.

In our ($2 million+ houses) neighborhood there were so few houses for sale this summer (right now there's _1_) that when something came on the market it would immediately get multiple over-asking all-cash offers from very wealthy buyers sight unseen. Then they would walk if they decided they didn't like the house. So now sellers are requiring huge non-refundable earnest money deposits - a buddy just sold his place and if the buyer had decided to walk for *any reason* they would have lost their $200k earnest money...

Crazy, crazy.

-W

Fork that. I've seen markets like this before. That's the exit sign with a big bright spotlight on it.

[dan.johnston]

[/quote]

Fork that. I've seen markets like this before. That's the exit sign with a big bright spotlight on it.
[/quote]


Yeah. They say no one rings a bell at the top (or bottom
) of the market, but I’ve been hearing a faint ringing for the last 4 months that’s getting stronger.

[Roland of Gilead]

Building a house new is so expensive.  All of the modern codes and materials.

Except in hot markets, I have come to the opinion that most houses are being sold too cheap.

[waltworks]

Fork that. I've seen markets like this before. That's the exit sign with a big bright spotlight on it.

Well, sure, but I need a place to live, and my kids like their friends and their school and there's nothing available to rent.

I mean, it's irrelevant to me. We have lived here for a long time and the magic extra half million bucks of home equity doesn't mean much to us except maybe higher property taxes. I'm having a hard time imagining any of the folks buying places here caring much either, honestly. This isn't over-leveraged flippers buying up Scottsdale tract homes, it's a ski resort full of rich people with no mortgages.

Still, if I could find a decent rental that we could stay in, guaranteed, for the next 20 years at a good price, I'd sell this place in a hot second.

-W

[clarkfan1979]

Fork that. I've seen markets like this before. That's the exit sign with a big bright spotlight on it.
[/quote]


Yeah. They say no one rings a bell at the top (or bottom
) of the market, but I’ve been hearing a faint ringing for the last 4 months that’s getting stronger.
[/quote]

That bell has been ringing by many people since 2015. My rentals have increased in value by 60% since 2015. If my math is correct, prices would have to decrease by 37.5% to go back to 2015 levels. Even if that happens, I'm not selling. I have enough capital to weather the storm.

[Jon Bon]

Fork that. I've seen markets like this before. That's the exit sign with a big bright spotlight on it.



Yeah. They say no one rings a bell at the top (or bottom
) of the market, but I’ve been hearing a faint ringing for the last 4 months that’s getting stronger.

That bell has been ringing by many people since 2015. My rentals have increased in value by 60% since 2015. If my math is correct, prices would have to decrease by 37.5% to go back to 2015 levels. Even if that happens, I'm not selling. I have enough capital to weather the storm.

Pretty much my answer to all RE questions right now.

[Villanelle]

Haven't read all the responses, but it seems logical and predictable that when sales prices are way up there would be few foreclosures.  If you aren't upside-down on a property, why would you foreclose?  And while it's not impossible, if your home is now worth 25% more than you paid for it 5 years ago, it's difficult to have negative equity in it. Maybe you can't make your payment, but you sell, give the bank what they are owed, and probably walk away with at least a few buck in your pocket.  So there's no need to hand it back to the bank (or get the bank to agree to a short sale). 

It won't be until the bubble--if that's what it is--pops that you'll see those foreclosures.  The house someone bought for $200k, that's now worth $250k, will only be worth $150k but their loan will still be $180k. With no job or a panic-taken job that pays much less, they can't make the payments, and they can't come up with the $30k they'd owe just to sell walk away (plus what's eaten by fees).  That's then the foreclosures will start hitting. 

[dan.johnston]

Haven't read all the responses, but it seems logical and predictable that when sales prices are way up there would be few foreclosures.  If you aren't upside-down on a property, why would you foreclose?  And while it's not impossible, if your home is now worth 25% more than you paid for it 5 years ago, it's difficult to have negative equity in it. Maybe you can't make your payment, but you sell, give the bank what they are owed, and probably walk away with at least a few buck in your pocket.  So there's no need to hand it back to the bank (or get the bank to agree to a short sale). 

It won't be until the bubble--if that's what it is--pops that you'll see those foreclosures.  The house someone bought for $200k, that's now worth $250k, will only be worth $150k but their loan will still be $180k. With no job or a panic-taken job that pays much less, they can't make the payments, and they can't come up with the $30k they'd owe just to sell walk away (plus what's eaten by fees).  That's then the foreclosures will start hitting.

Yes I read a paper by Fannie Mae about that, they’ve studied it, and the reason people allow themselves to be foreclosed on is most times a combination of negative equity, and sudden lack of income. We have the lack of income, but they expanded the forbearance programs with approximately 6% of all homeowners in forbearance as of September. So that has helped. Though many of those programs have a lump sum payment due at the end of the forbearance period.

 My point isn’t so much that all the new people who are unemployed will get foreclosed on, but that by putting a (now) almost year long moratorium on foreclosures they have been building a giant backlog of properties that have nothing to do with Covid. Like someone said above, they’re homes that had the process started during  2019, and have just been sitting there, many unoccupied, since they couldn’t finish the year or so long foreclosure process. That backlog hitting the market, which in my small 100,000 population area I estimate to be 400 or so homes, will inevitably depress the sale price of all other homes, leading to a drop in value across the board, which combined with lack of or lower income may lead to wide spread foreclosures.

[Villanelle]

Haven't read all the responses, but it seems logical and predictable that when sales prices are way up there would be few foreclosures.  If you aren't upside-down on a property, why would you foreclose?  And while it's not impossible, if your home is now worth 25% more than you paid for it 5 years ago, it's difficult to have negative equity in it. Maybe you can't make your payment, but you sell, give the bank what they are owed, and probably walk away with at least a few buck in your pocket.  So there's no need to hand it back to the bank (or get the bank to agree to a short sale). 

It won't be until the bubble--if that's what it is--pops that you'll see those foreclosures.  The house someone bought for $200k, that's now worth $250k, will only be worth $150k but their loan will still be $180k. With no job or a panic-taken job that pays much less, they can't make the payments, and they can't come up with the $30k they'd owe just to sell walk away (plus what's eaten by fees).  That's then the foreclosures will start hitting.

Yes I read a paper by Fannie Mae about that, they’ve studied it, and the reason people allow themselves to be foreclosed on is most times a combination of negative equity, and sudden lack of income. We have the lack of income, but they expanded the forbearance programs with approximately 6% of all homeowners in forbearance as of September. So that has helped. Though many of those programs have a lump sum payment due at the end of the forbearance period.

 My point isn’t so much that all the new people who are unemployed will get foreclosed on, but that by putting a (now) almost year long moratorium on foreclosures they have been building a giant backlog of properties that have nothing to do with Covid. Like someone said above, they’re homes that had the process started during  2019, and have just been sitting there, many unoccupied, since they couldn’t finish the year or so long foreclosure process. That backlog hitting the market, which in my small 100,000 population area I estimate to be 400 or so homes, will inevitably depress the sale price of all other homes, leading to a drop in value across the board, which combined with lack of or lower income may lead to wide spread foreclosures.

That's probably somewhat true.  But when forbearance ends, some of those people who can't make payments will sell because they still have equity in the home.  Now, if enough do that, it will depress prices so that the second and third wave perhaps no longer have equity and need to foreclose.  But with prices up so much, it would take a lot to make that happen. 

It doesn't matter if they have nothing to do with Covid.  If someone had $0 equity and was going to foreclose, but now because it sat for a year and during that year prices rose, they perhaps have $10,000 in equity, so there is no need to foreclose.  Again, I'm not saying that will be everyone's situation, but I do think it will shave a not-insignificant portion of the homes off the foreclosure list and onto the regular sales list. 

[jeromedawg]

So it seems the consensus here is that it looks like there likely won't be a huge number of foreclosures. But people may be selling just to cash out of the equity in their home and potentially downsize etc. In that sense, it doesn't seem like we'll be seeing a ton of hot deals any time soon. As far as it being a seller's market vs neutral vs hot, my realtor was thinking that IF another round of stimulus and forbearance is pushed by the current administration we may very well see a 'correction' come in 2022. Otherwise, if there isn't any it seems like mid to later this year/2021 we might see some level of correction. BTW: "correction" here doesn't mean "hot deals" - it just means that we might see less competition and less bidding wars but pricing will still be in accordance.

The other concern he has though is with inflation regardless of what happens. Since it doesn't seem the market will be depressed anytime soon, it seems like homes will continue to appreciate either way (and through the roof in my area). My dilemma right now, as we are currently renting and planning to settle here long term (well, afaik haha), is if we should just try to buy and lock in a place *now* (at the likely expense of paying more due to a multi-bid war) while I have a job and with lower interest rates vs trying to wait it out at the risk of interest rates, job loss, and home prices continuing to increase.

[waltworks]

I think in current circumstances the only places where you'll see "hot" deals are places that are literally drying up and blowing away. There is just too much equity built up and we don't have loose enough lending or large numbers of crazy overleveraged homeowners.

If you dig back 10 months or so you can find my "will we have a COvid housing crash" thread, for some fun laughs.

-W

[swashbucklinstache]

I'm not knowledgeable on RE, but a speculative thought popped into my head. A household with a modestly above median income can take on a very large mortgage compared to most of history. Aren't we expecting to see raised interest rates in the decade coming out of COVID, and wouldn't we expect their home value to correspondingly decrease? Magnified by, if we believe there is, a glut of buyers right now and thus potentially fewer than usual buyers in the next few years putting additional downward pressure on prices?

In my head, that person would be in real trouble if they lost their job in that window. They can't make the $2400 payment on a $600,000 mortgage on a house purchased at $650,000 and now worth $425,000. I wonder if that person probably bolts to bankruptcy rather than seeing if they can get a new job, or waits. My recollection of 2008 (I was just 18) was the absolute numbers were much lower but it was more the higher interest rate that killed you. Here you've got people (formerly) making, say, $100k staring at $175,000 in paper debt straight away. Would more people opt for a wiped slate of bankruptcy more quickly than in 08? It's going to be extremely hard to pay down $175,000 as a neighborhood handyman regardless of the interest rate, even if you can make the minimum payments. It's probably more intimidating than a lower sticker price but higher interest rate was, but maybe the slower rise has the opposite effect.

I guess I'm wondering if the cure for the (literal) disease will work in the short term but raise the stakes considerably in the intermediate term. Particularly as automation of middle class jobs looms..

[waltworks]

Any scenario I can imagine in the medium term where interest rates rise would also involve inflation, which would drive house prices up just as fast, or faster, than interest rates could drive them down.

Long term demographics in the US are going to be bad for the housing market broadly, but that's a 40-50 year time horizon. And a lot (more immigration) could change in that time.

-W

[FINate]

Yes, all else being equal, mortgage rates inversely affect RE prices. This is why I never understand the "I need to buy NOW while rates are low" mentality. You're much better off buying when rates are really high because this reduces affordability for everyone putting downward pressure on prices. The coup de grâce is to refi later if rates come back down. Many boomers essentially did this in the early 1980s. But to walt's point, all else is not equal, and rates usually move for a reason, so... it's complicated.

The situation in 2008 was much worse than what you've described. It was a speculative frenzy fueled by no-doc loans and CDOs that destabilized the entire financial system. Most people were using their houses like ATMs to fund their lifestyle via repeated cash-out refis. Not saying that RE isn't a little frothy right now, I think it is, but loan standards are much more stringent and on average homeowners are sitting on a lot more equity. Rapid changes in interest rates would cause some market upset, which is why the Fed will not allow this. So I expect slow changes to rates over a long time horizon.

However, we're really talking here about housing in the aggregate. But in my experience RE cycles never play out evenly, which makes sense because RE is so local. I think we're going to see some lasting effects from the remote-work phenomenon as people refuse to pay ridiculous housing prices in cities that have worked so hard to remain unaffordable.

[MustacheAndaHalf]

Some investment firms created mortgage securities to profit off the the fees.  When they ran out of mortgages, they started accepting anyone - no job/no income/no documentation.  They were asking for fraud, and they got it.

Right now people might not be able to afford rent or mortgage payments, but it's not a case of mass fraud.  If state or national governments offer help now, before foreclosures can occur, there's some moral hazard of people abusing that guarantee.  But I imagine some help will be in the offering to mitigate the situation.

If most builders react the same way, by delaying projects, would that lead to a shortage later?

[ChpBstrd]

Any scenario I can imagine in the medium term where interest rates rise would also involve inflation, which would drive house prices up just as fast, or faster, than interest rates could drive them down.

Long term demographics in the US are going to be bad for the housing market broadly, but that's a 40-50 year time horizon. And a lot (more immigration) could change in that time.

-W

I’m not so sure that the cost of housing is linked closely to inflation, especially in HCOL markets. It may cost $150k to build a typical SFH today, and this number inflates by the cost of labor and materials. But if we’re in a HCOL area where such houses sell for $1M the bulk of the price is obviously in the land, not the labor and materials. So if the cost of building doubled and everything else stayed the same, our HCOL house might go up 15%. In a LCOL area where lots are cheap, the house becomes almost 100% more expensive with 100% inflation.

The point of this example is to show the detachment of HCOL housing from inflationary influence. The vast majority of the value is in the land. Will land prices go up if the prices of food, lumber, energy, clothes, labor, cars, etc. goes up? Maybe, but HCOL land could also fail to keep up with inflation, as technology continues to enable product substitution (WFH in a LCOL area using tech) and higher interest rates change the actual cost experienced by consumers. Additionally, HCOL area home prices are already well beyond most affordability metrics, suggesting that these markets are being driven by speculation - cheap interest and a history of going up fast. If the speculative mentality was challenged, would HCOL housing return to affordability trend lines?

[roomtempmayo]

On the original question, I think we'll get some form of national level support for renters/owners/landlords that will mostly prevent another foreclosure crisis. Nobody is willing to let that happen again.

I agree.  There's zero chance the Federal government will allow mass foreclosures and a repeat of 2008-2010.  The mortgages will just be modified to allow most people to stay in their homes.

We could see a 10% contraction, but the Fed would start buying houses directly before they'd allow another 30%+ price drop.

[clarkfan1979]

I was listening to a local real estate radio show on my drive home from work today. They said for Colorado Springs, CO a healthy inventory of single family home for sale on the MLS is around 2,000. Right now it's 240. 

[Villanelle]

I was listening to a local real estate radio show on my drive home from work today. They said for Colorado Springs, CO a healthy inventory of single family home for sale on the MLS is around 2,000. Right now it's 240.

In one of my military family FB groups, I'm seeing the absolute desperation (and the absolute insanity of waived inspections and heave five-figure non-refundable deposits, tens of thousands over asking still not being accepted).  It's discussed so much.  Recently one agent posted that in one heavily populated zip code, there were 12 homes actively listed.  12.  The only things that stay on the market more than a day or two are those that set a date a few days or week out for all offers due, so they can sort through them. 

And these are houses that are generally $750k+ and often well over a million, for a fairly modest single family home that likely still has at least a half hour commute to major work centers. 

[waltworks]

The thing is, as fun as it is to see my house appreciate like bananas... it's not actually a good thing. In my area, if you have an income under $250k/year or assets under a couple million bucks, you are not ever going to be able to buy a house. Ever.

Now, it's luxury ski resort, so whatever. It was never "affordable".

But this is happening *everywhere*. Houses in Salt Lake, just over the pass from us, are going for like $750k+ for a bare-bones 100 year old starter house. Median income in SLC is $70k for a household. If by some miracle an average couple/family has $150k saved up for a downpayment, they're going to get absolutely crushed by the ~$3500 in PITI (of course, they can't qualify for that loan, hopefully).

It's a disaster if it crashes. It's an ongoing disaster that it hasn't. It sucks.

-W

[former player]

The thing is, as fun as it is to see my house appreciate like bananas... it's not actually a good thing. In my area, if you have an income under $250k/year or assets under a couple million bucks, you are not ever going to be able to buy a house. Ever.

Now, it's luxury ski resort, so whatever. It was never "affordable".

But this is happening *everywhere*. Houses in Salt Lake, just over the pass from us, are going for like $750k+ for a bare-bones 100 year old starter house. Median income in SLC is $70k for a household. If by some miracle an average couple/family has $150k saved up for a downpayment, they're going to get absolutely crushed by the ~$3500 in PITI (of course, they can't qualify for that loan, hopefully).

It's a disaster if it crashes. It's an ongoing disaster that it hasn't. It sucks.

-W

Yeah.  It's absolutely bananas.  Good for you and me financially (in theory), but bad for the world--and I would rather live in a better world, personally.  Sounds like you would too.

One thing is, as demonstrated by this forum, there are a lot of middle aged and older people who have accumulated significant financial assets and that has divorced what they are able to pay for a house from what their current income is.  In HCOL and even MCOL areas the metric of "house price = income x [X amount]" just doesn't apply any more. because of the amounts of capital that have accumulated in the last few decades.

For younger people that means that buying a house either requires an exceptionally high income or a capital influx from the "bank of mum and dad" or "bank of grandma and grandpa".  That's OK for families with the resources to create these inter-generational transfers.  But the end result is both a big increase in inequality and a growing and potentially unbridgeable gap between the house-owning classes and the house-renting classes.  That's pretty much how things were before the post-WWII boom - except that renting may have been relatively more affordable then.

[FINate]

One thing is, as demonstrated by this forum, there are a lot of middle aged and older people who have accumulated significant financial assets and that has divorced what they are able to pay for a house from what their current income is.  In HCOL and even MCOL areas the metric of "house price = income x [X amount]" just doesn't apply any more. because of the amounts of capital that have accumulated in the last few decades.

For younger people that means that buying a house either requires an exceptionally high income or a capital influx from the "bank of mum and dad" or "bank of grandma and grandpa".  That's OK for families with the resources to create these inter-generational transfers.  But the end result is both a big increase in inequality and a growing and potentially unbridgeable gap between the house-owning classes and the house-renting classes.  That's pretty much how things were before the post-WWII boom - except that renting may have been relatively more affordable then.

Agreed. This is now the third time as an adult that I've witnessed a huge inflation of housing prices. One of those times ended exceptionally badly, though they were all terrible w.r.t. inequality. Will we ever stop doing the same things expecting different results? This is not a tirade against the Fed printing money, but rather a critique of policies which encourage people to treat a home as an investment. I'm increasingly coming to the conclusion that things like the SALT deduction, mortgage interest deduction, and capital gains exclusion should be phased out. This would likely hurt my finances as a homeowner but don't care, sick of all the money sloshing around in the housing market casino and how this devastates those just trying to make ends meet.