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Do Forbearance Numbers Foretell Residential Foreclosures?

Seemingly defying the odds, the Greater Phoenix residential market seems to be hanging in there. Homebuilders experienced a 9% increase during May vs. April, according to RL Brown Housing Reports, and the Home Builders Association of Central Arizona reports that homebuilders are pulling more single-family building permits than they did this time last year. “Even Covid-19 couldn’t keep Phoenix home price gains down,” proclaimed the Phoenix Business Journal.

While we are as eager as anyone to hope that Phoenix residential real estate can maintain its nation-leading momentum, certain aspects of the market require a bit more caution and prudence. Overall supply is low, but we are seeing significant inventory growth on the upper end—and there are several upcoming events that could dramatically affect inventory in all tiers of the market:

  • The depletion of PPP loans this summer and the end of expanded unemployment benefits on July 31. These extra funds have helped keep the economy flowing during the worst of the virus outbreak. How will their disappearance impact employment numbers, the financial situations of small and midsize businesses, and the homeowners that depend on them?
  • The lifting of the foreclosure moratorium on June 30. Delinquency and foreclosure rates were at a generational low in February 2020—only for delinquency to pop to its highest single-month increase in history in April. (https://dsnews.com/daily-dose/05-21-2020/mortgage-delinquencies-hit-historic-spike) In the past month, forbearances saw their first decline since the COVID-19 crisis began, with about 8.9% of all mortgages in forbearance plans. (https://dsnews.com/daily-dose/06-05-2020/forbearances-see-first-decline-since-crisis-began) The question here becomes: Of those forbearances, how many of them will turn into foreclosures once they are no longer protected? For applicants who were in strained circumstances from job loss, the issue will hinge on whether employment has already returned, comes back quickly, or exists at all.

The Phoenix residential real estate market looks quite good right now, so do not mistake this for a Chicken Little editorial. The stock market is strong and unexpectedly good unemployment numbers last week could indicate that we are closer to the end of the tunnel than the worst-case scenario. Nonetheless, it is always prudent to take a dose of reality along with the news, even when it’s positive.

Whether you want expert guidance in selling a home, finding your dream home or investment property, or strategies to maximize your return on investment (R.O.I.) on real estate assets (residential or commercial), contact R.O.I. Properties at 602-319-1326, or info@roiproperties.com.

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