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Forbearance Exits Expected to Add Inventory

Market Data + Trends

Forbearance Exits Expected to Add Inventory

August 10, 2021
home for sale
Photo: Andy Dean |

A wave of inventory could come soon as hundreds of thousands of homeowners are expected to exit forbearance, with a significant share likely to list their homes. This not only benefits the market’s inventory problem, but homeowners can benefit from the significant price appreciation. The intense housing market and strong equity growth will offer these homeowners more options than those in 2008 who were pushed into involuntary foreclosure, says Zillow. September and October of this year is expected to be big for forbearance exits, and Zillow expects an additional 0.40 months of inventory to come as a result.

For context, this additional 0.40 months of supply roughly means an extra 211,700 homes for sale, which would represent 13.1% of all predicted sales over the next three months. 

This projection assumes that borrowers exiting forbearance in August – October will behave similarly to borrowers that exited forbearance in the past year, when approximately 25% of borrowers may have listed their homes for sale following their forbearance exit. In a more distressed scenario, where 50% of forbearance exits lead to homes listed for sale — whether by foreclosure or a pre-emptive borrower sale — we project that 0.80 months of housing supply will be added to the market in August – October 2021, representing a 31% increase in months of supply relative to June levels and 26% of expected sales volume in the coming three months. In a positive outlook scenario, where only 10% of borrowers exiting forbearance sell their home, we project that 0.16 months of additional supply will come to market and represent 5% of home sales from August – October 2021. 

Low-income borrowers — who often, but not always, use federally backed programs including low down payment loans backed by the Federal Housing Administration (FHA) to help them secure a home — may be particularly vulnerable, with less savings and monthly cash flow to work their way out of forbearance. Atlanta (42,000), Houston (40,000), Chicago (28,000), and Dallas (22,000) have the highest number of borrowers behind on their FHA loans, according to an analysis of FHA data by the American Enterprise Institute. Other areas with high levels of delinquent borrowers include Washington, D.C.; Baltimore; Riverside, Calif.; San Antonio; Fort Worth, Texas; and Philadelphia.

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