A Surge of Foreclosures and Short Sales? Unlikely.
With all of the turbulence in the country right now, many are asking if we will experience a surge of foreclosures and short sales due to the COVID-19 recession. People have seen the number of mortgage delinquencies this year; they assume we are on the brink of a foreclosure crisis like back in 2008-2009 when people were losing their homes at an alarming rate. However, based on the available data, things are very different this time around.
Forbearances in 2020 factor heavily into mortgage delinquency counts. These are people who voluntarily put their payments on pause and plan to catch up in 90 days, 6 months or even 12 months down the road once shutdowns have ended and things become closer to normal at work. These forbearances look to be 90+ days delinquent in the data. However, they are different than true delinquencies because these homeowners plan to, or have already, modified their loans to catch up over the long term.
Of all the people that took a forbearance nationally, only 4% have had their payment holiday expire, could not re-start payments, and are now actively delinquent. Due to strong home appreciation in Colorado over the past decade, 95%+ of the locals of that 4% will have plenty of equity and should be able to sell their home without distress.
Low Entry-Level Inventory Expected to Stay at Least Through Q1 of 2021
Despite a “V-shaped” recovery in the national markets since the COVID-19 crisis began in March, many are calling the current pattern more of a “K-shaped” recovery. This is because of the divergence in the strength of the recovery between people of different socioeconomic backgrounds. People with less education and income have been disproportionately affected by the latest recession, which has set back the home buying goals of many.
If you are on the hunt for an entry-level home, condo, or townhome and qualify for financing, now may be the best time to act. The 2021 spring season is expected to be red hot as many people who had originally postponed the sale of their homes are expected to bring them to market after the election and winter. This should also put more buyers on the move who were trying to wait out the COVID-19 crisis. If you find a home you’re interested in, act quickly. Make strong offers and don’t expect sellers to give many concessions. In this market, sellers have most of the power in terms of negotiations. You don’t want to lose out in a bidding war because of petty details like paint colors or finishes. If you do get into a home, there should be plenty of time to paint and finish the home as you like. Focus more on big ticket health and safety concerns, as that’s most likely what other buyers will be limiting their requests to.
If you are looking for a trade-up or more expensive home, now may be a great time to make the switch. Conforming mortgage interest rates (under $510K) are at record lows, and jumbo loan rates have also dropped a lot. Despite an expected 0.5% increase after the election (based on historical trends) the cards are still in your favor. The demand for your current home is probably sky-high, and there is generally more to choose from in the higher price points. This could be your golden opportunity!
Fewer Sellers Are Willing to Drop Prices
As the demand for homes continues to skyrocket and inventory continues to shrink in 2020, few sellers are accepting negotiations on price – and why would they? The main answer is overpricing. Be sure to do your research and rely on your agent to help you accurately price your home based on comparable homes in your neighborhood. The biggest reason people end up having to reduce the price of their home or have to accept lower-priced offers is because they get excited, ignore all of their agent’s warnings, list their home at a higher price than the market value, and then the home sits on the market too long. This is when price reductions begin. Buyers may begin to wonder, “What’s wrong with that house?” among other things. With such a strong market, don’t fall into this classic trap and potentially lose out on thousands of dollars because you wanted to push market value. Based on the current market trends in the Denver metro, you are likely to receive strong offers on your home if it’s priced at a fair value from the start. Average home prices are up again this year, and bidding wars may increase the sales price of your home up to where you wanted to price it anyway.