Year-end real estate outlook: a “tick to torrent” of foreclosures expected in 2022
Despite a record year of feverish activity in the market, the real estate market could experience a dose of reality in 2022. A post-pandemic return to normal will likely be underlined with its share of ups and downs as price increases slow down. , mortgage rates and the impacts of government intervention are easing.
Based on recent reports from ATTOM solutions, the market didn’t have to wait long to see foreclosure activity resume since the moratorium was lifted in July. According to the report, notices of default, scheduled auctions or bank foreclosures rose 34% in the third quarter of this year.
Experts say the rise is likely to continue well into the New Year after nearly a year and a half of a moratorium on foreclosures.
“Foreclosure starts are very likely to increase over the next six months to a year, with the increase ranging from one tick to one torrent,” says Todd Teta, product manager at ATTOM Solutions.
Influence of lenders
The jury is still out on how big the next foreclosure peak will be, but that will largely depend on how lenders choose to approach distressed borrowers who are behind on their payments.
In previous interviews we have conducted, financial institutions told RISMedia they would try to work with borrowers after the moratorium ends, and it still appears to be the case, according to a recent statement from Wells Fargo.
“Wells Fargo is here to help homeowners when their payment suspensions are coming to an end, and we reach out to our customers through emails, letters and phone,” a Wells Fargo spokesperson said, adding that the bank had stopped all activity related to foreclosures on buildings occupied until the end of 2021, except in special cases.
“In most cases, clients who were up to date with their monthly mortgage payments or their home equity when the payments started, and who are willing to resume those payments, may be able to defer payments. missed payments at the end of the term of the existing loan, ”the spokesperson said. keep on going. “Customers should call us to discuss the potential shift of payments at the end of the term or to consider other program options to make up for missed payments.”
Additional guarantees have also been put in place by the Consumer Financial Protection Bureau (CFPB) to facilitate the transition of borrowers to re-make their payments. The new rules essentially guide lenders on how they should approach and work with borrowers to avoid foreclosures.
The CFPB rules went into effect on August 31 and will last until the end of 2021.
Lenders taking action against borrowers may also depend on homeowners’ delay, according to Mary Ellen Graziano, senior vice president at William Raveis Mortgage.
“I think the first properties they’re going to look at are the ones that are discontinued,” she says. “The rest will probably work with the borrowers and see if they can come up with a payment plan and maybe even adjust the loan terms.”
Despite the measures taken to prevent foreclosures, increased foreclosure activity will inevitably result from the current circumstances.
According to recent reports from Black Knight Inc., forbearance volumes continue to decline, with the number of active plans related to COVID-19 falling below 1.6 million in September.
While mortgage default rates showed signs of improving in August, Black Knight also noted that severe defaults – borrowers over 90 days late – are still roughly triple their levels. ‘before the pandemic.
However, according to Black Knight, one silver lining is that defaults are set to return to their pre-COVID levels by early 2022.
A sustained spike in foreclosures is a heartbreaking prognosis, especially for history buffs who remember the last recession.
According to Teta, foreclosures are likely to appear first in poorer areas, where homeowners are more likely to be in financial difficulty and less likely to have the cash to make deals with lenders.
“This will likely lead to an increase in the number of zombie properties, which can generate plague and undermine the appeal of neighborhoods where they spring up,” he says, noting that these types of foreclosures can serve as a leading indicator of strength. the housing market.
“Few measures of force have stood out more in recent years than the properties of zombies, or the lack of them,” Teta continues.
Zombie properties make up one in 13,100 homes in the United States, according to recent reports from ATTOM Solutions. This is a huge improvement from that of 10,300 just two years ago, Teta said, adding that the stock was larger after the Great Recession.
“This is a far cry from what happened when home values fell after the last recession, and many homeowners gave up mortgages they couldn’t afford or didn’t want to pay off,” said Teta.
According to Danielle Hale, chief economist at realtor.com®, the looming wave of foreclosures isn’t shaping up to be the fatal blow to the industry that economists predicted in 2020.
“When people hear this they rightly think of the last time we had a bunch of foreclosures, it impacted the housing market,” Hale said. “I don’t think we’re going to see something like this.”
Eric Spotswood, regional mortgage manager at Prosperity Home Mortgage, echoed similar sentiments, noting the differences between the two eras.
Looking back to 2008, Spotswood notes that a mixture of overbuilding and lack of equity contributed to the market downturn, with borrowers finding themselves upside down in their mortgages.
While the COVID-19 pandemic caused a recession in 2020 and a temporary lull in the market, the circumstances are essentially reversed in the current market, according to Spotswood.
“Even if someone has to do a clearance sale to get out of their house, people have more equity in their house than at any time in history, and they could do it,” said Spotswood. “The flexibility of borrowers who are in homes that may be in a position where they cannot afford it puts them at a point of strength. “
Brokers agree that a slight increase in foreclosed properties on the market, which is still desperately in need of new inventory nationwide, could provide a needed injection of affordable housing stock.
Rei Mesa, CEO of Berkshire Hathaway HomeServices Florida Properties, doesn’t find the forecast alarming for her market, which is still in need of an inventory injection.
“I don’t see this as a problem, and in fact I would see it as an opportunity for buyers to be able to buy properties because there is a lot of competition for very few listings,” Mesa said.
Based on third-quarter data reported by ATTOM, Florida was among the list of states with the highest foreclosure rate, with more than one in 2,000 properties being foreclosed.
The state also recorded a high rate of foreclosures made during the same period.
With the amount of demand, Mesa believes all new listings will be absorbed quickly.
According to Candace Adams, CEO and President of Berkshire Hathaway HomeServices New England, Westchester & New York Properties, the same is true for the Northeast markets.
“You have nine or 10 listings per property and our current inventory is about 23% lower than last year,” Adams says. “We know that in the state of Connecticut we have a supply of less than two months, so hopefully we have foreclosures because they’ll be consumed in about two seconds because the buyers are still there.”
Yuri Blanco, broker / owner of RE / MAX Executives, echoed similar sentiments for the Boise, Idaho market. According to Blanco, the market continues to see an inbound migration of buyers fueling demand.
“They are still interested in buying but just haven’t been able to lock anything down yet,” Blanco said. “I think once these hit the market, there will be buyers out there to take advantage of these prices, which are usually a fairly fair market value.”
However, the opportunity is not just for buyers. Mesa also emphasizes that agents should improve their business outlook in the months and years to come if they are prepared.
Part of this preparation includes updating training and certifications that stand out among lenders and banks.
“Once the banks take over the properties, they will use the REALTORS® that lenders are used to working with or have already approved with to handle the listings,” Mesa said.
He notes that courses aimed at improving understanding of how to work with the bank, the borrower, and the potential buyer could be a boon for agents who wish to capitalize on an influx of foreclosed properties.
Demand for continuing education on short selling and foreclosures is already showing signs of increasing, according to Tina Lapp, head of local brands for the Colibri Group and former president of Colibri’s Hondros College.
“We regularly poll our students on the topics that interest them, and we find that these topics are starting to become more in demand than they have been in recent years,” Lapp said, adding that Colibri offers classes on a mix. of “hot topics having an impact on the current real estate market.
“Our demand for courses is following the market, which is great to see that real estate professionals are highly motivated to learn the skills that support their buyers and sellers,” continues Lapp. “We are starting to see a slight increase in demand for topics related to short selling and foreclosures, but certainly not to the extent of what we were experiencing in 2007-2009.”
Contact Bill Cullin to be prepared for the changing market!
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