The Real Market Update

As we are now firmly entrenched in the 4th quarter it’s time to look not only at what is going on but take some informed, data driven shots at what is coming down the pike, especially as it relates to the distress sale market (short sales and foreclosures).

I’m going to lead with the punchline.  Don’t expect any kind of influx before the end of the year and likely not until the 2nd quarter of 2021,  and then a muted one at that.  I’ll explain.

Let’s set some context first.  In November 2006 there were almost 23,000 homes on the market in the Northern Virginia region.  Today there are fewer than 3,200!  Then we had a market bubble created by widespread mortgage fraud and absurdly loose lending guidelines that artificially drove up prices and left borrowers with no equity positions when the market turned.  Lending guidelines are much, much more stringent now.  And interestingly enough the pandemic has created an economic downturn and pressure on homeowners income and thus their ability to make their mortgage payments, but it has also provided an incredibly effective solution.  The administration’s commitment to implementing and extending the mortgage forbearance program means that, through the end of the year at least, delinquent borrowers are in deferment through the program and aren’t in a position to have foreclosure proceedings implemented against them.

Here’s the good news about forbearance in two parts:  Since March more people have exited the Forbearance program than have entered it and a large number of the borrowers in the program, interestingly enough, are current on their payments.  So there is not a big shoe waiting to be dropped here.  There is more good news for borrowers who, if they get to the end of their year of forbearance and still find themselves unable to make their payments, will in most instances have enough equity to sell their homes and get out clear.  That’s due to the price increases of the last 2 years and the higher down payment requirements which have created strong equity positions.   90% of borrowers in Forbearance have at least a 10% equity position.  None of this is to say that there will not still be increased foreclosures coming in 2021.  There will be.  Just not the deluge some are concerned about.  The factors for it simply are not there.  Remember that right now there are fewer than 20 distress sales in the entire region!

Let’s talk about the bad news, and where those distress sales will be coming from.  The first group to feel the pain will be landlords, most of whom are Mom and Pop type investors with just a couple of properties.  Those folks who have one or more of their tenants in delinquency may not be able to weather the loss of cash flow while still having to make their mortgage payments.  In September 14% of residential leases were delinquent, which sounds bad and isn’t great but it’s only about 4% more than 2019.  More needs to be done for the landlords in my estimation.

Commercial is a different story for several reasons.  One is that their market is not being propped up like the residential market.  The other is that the virus has not only disrupted the normal course of business but it is bringing about a complete recasting and redirection of how commercial space will be utilized.  Retail and hospitality have had it particularly rough.

All of this is to say that for my clients in the residential arena there are powerful reasons for optimism.  Many of my previous posts speak to that, especially for this region.  If you have any questions or want to know about what your options are if the virus is putting pressure on your mortgage, reach out to me and I can walk you through your options.

It’s a good life.