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    Will there be a wave of foreclosures in 2021 for Southern California?

    by Rosario Rodriguez | January 29, 2021

    You may be wondering if 2021 will bring a wave of foreclosures to Southern California after the economic downturn caused by COVID-19. Currently, under the CARES (Coronavirus Relief and Economic Security) Act, homeowners have foreclosure and eviction protections through March 31st, 2021. What happens once these forbearance protections run out? Will we will see a repeat of 2008 with a market crash and a huge wave of foreclosures. We think not.

    Homeowners have tons of equity

    With the moratorium on home foreclosures, distressed sales have dipped to their lowest levels ever, making up less than half a percent of the listing inventory and demand in Southern California. Approximately 7.5% of all active mortgages are in active forbearance according to a report from Steven Thomas, and of those that are past due, 77% of homeowners have at least 20% equity in their homes, and 90% have at least 10% equity. Even if these homeowners are still experiencing financial hardship and are forced to sell at the end of the forbearance period, most will have enough equity to allow a traditional sale and avoid foreclosure or short sale altogether.

    We are already in an economic recovery

    If you look back at the last three economic recessions, only one resulted in declines in real estate values. The bubble created by the Great Recession in 2008 was fueled by subprime lending practices, which meant homeowners were qualifying for home loans they couldn’t afford. Contrast that with today, where tight lending qualifications continue to keep the housing market strong and we’ve already seen a V-shaped recovery.

    Housing was blazing hot last year

    Home sold prices according to data from CRMLS rose 4.1% year-over-year from 2018 to 2019, however from 2019 to 2020, sold prices rose 14.6% year-over-year! Housing prices are expected to normalize in 2021 as more sellers are encouraged to put their homes on the market and buyers continue to take advantage of historically low rates. According to Realtor.com’s predictions, home sale prices are expected to go up 5.7% in the next year. We think that is a low number for Orange County.

    Bottom Line

    While we will see more distressed homes in 2021 once the mortgage forbearance period ends, it will pale in comparison to the Great Recession. This end to forbearance will not cause declines in real estate values, which means buyers who’re hoping to purchase a foreclosure and secure a real estate deal may be disappointed. If you are ready to buy a home now, there is no reason to wait.

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