The housing market has been going gangbusters for a couple of years now, with a shortage of home inventory and buyers willing to pay top dollar. Much of the boom is due to low interest rates, creating the opportunity for “affordable debt” in the mortgage market. But with pandemic-era programs ending, how much longer will it be until the “boom” becomes “bust”?
With many mortgages in forbearance (deferred interest payments) and the upcoming end of the forbearance grace period, it won’t be long until banks want homeowners to ante-up on getting their accounts into good standing. The deferred interest won’t be rolled into existing loans. Instead, homeowners will be faced with either taking out a second mortgage or other way of financing their postponed interest debt, or they will have to pay their deferred interest in-full. For those who don’t qualify for additional financing and can’t afford the cash out-of-pocket, foreclosure is a likely result. If that happens, the scarcity of available home inventory will quickly and drastically change, and suddenly there could be a glut of houses that banks are stuck trying to sell.
Should this happen, property values of homes-for-sale that are currently drawing top-dollar will plummet. There will be a surplus of inventory, meaning that your existing home will be worth substantially less than what today’s market prices are bringing. And that’s not all. There’s a “domino effect” to all of this.
As home property values decline sharply, banks are likely to freeze home equity accounts (HELOCs) from further disbursements. A Home Equity Line of Credit is based on the amount of equity in the property, and as value decreases, there will be less equity available to draw from. To protect themselves from over-lending beyond the value of the equity in a given property, banks will freeze borrowing from those accounts.
For those who remember The Great Recession of 2007 to 2009, these developments will be reminiscent of the housing crash that took place during those years. At that time, the Federal Reserve helped curtail the recessing economy by lowering interest rates to near-zero percent as a stimulus effort. But with current rates already near historic lows, that option is not a likely tool to recover from the trickle-down impact of diminishing property values, foreclosures, and potential bankruptcies that may result from another housing crash and recession.
What’s the take-away from all of this? If you’re planning to sell, consider doing it NOW, not later. And be sure to speak with your financial advisor on how to proceed in the short- and long-term future to brace yourself for a rocky ride.
If the time is right for you to buy or sell, give us a call. We’re ready to jump into action. And if you would like to explore ways to proactively pay off your mortgage debt, potentially avoiding financial problems with your bank, we can help you evaluate your debt payoff picture at no cost or risk. Call us TODAY!
