With all of the chaos that has erupted from COVID-19, many people are worried that we may see a new wave of foreclosures. Many believe this is going to be another 2008. Restaurants, bars, brewpubs, hotels, cruise lines, airlines, and many other industries are laying off workers or dramatically cutting back their hours. Without employment, many homeowners are wondering how they’ll be able to make their mortgage payments moving forward.

Even with all of this happening right now, there are actually many reasons we don’t believe we will see a surge in the number of foreclosures like we did during the housing crash over ten years ago. Here are just a few of those reasons to consider:

Lessons Learned by the Government the Last Time

During the previous housing crash, the government response was slow as they failed to recognize the pitfalls of the risky mortgages that were in place, the challenges homeowners were having and waited too long to grant relief. Today, our Government is taking swift action. Just this week:

  • The Federal Housing Administration indicated it is enacting an “immediate foreclosure and eviction moratorium for single family homeowners with FHA-insured mortgages” for the next 60 days. 
  • The Federal Housing Finance Agency announced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for “at least 60 days.”

Homeowners Learned their Lesson Last Time Around

When the housing market was booming in the early 2000s, homeowner equity grew tremendously. Many homeowners refinanced to access that equity and used it to buy luxury items like cars, boats, and went on vacations. When the market corrected, many found themselves in a negative equity situation. Their mortgages were now greater than the value of their homes. Some stopped paying their mortgage and ultimately walked away, leaving the banks with no other option but to foreclose on their properties.

Currently, the home equity situation in America is very different. From 2005-2007, homeowners refinanced and cashed out $824 billion worth of home equity. In the last three years, cash taken out through refinancing has only been $232 billion, a third of what we saw the last time. This has led to:

  • 37% of homes in America having no mortgage at all
  • For the remaining 63%, more than 1 in 4 having over 50% equity

Even if prices decrease a bit (and, at this point, most experts are not predicting that they will), most homeowners will still have a large amount of value in their homes and will not walk away.

Help will be Available to Individuals and Small Businesses

The government is aware of and quickly addressing the financial pain this virus has caused and will continue to cause. Yesterday, the Associated Press reported:

“In a memorandum, Treasury proposed two $250 billion cash infusions to individuals: A first set of checks issued starting April 6, with a second wave in mid-May. The amounts would depend on income and family size.”

The plan also recommends $300 billion for small businesses.

Moving Forward...

We are facing uncertain and challenging times ahead. The question everyone has right now is how long before we get back to “normal.” We believe the lessons learned in the last crisis have Americans better prepared to weather the coming financial storm. For those who can’t, help is expected to come soon. We all need to unite together and help one another. United we stand, divided we fall. 

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Taylor Real Estate Group (brokered by eXp Realty) does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Taylor Real Estate Group will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.