Social distancing, mandatory business shutdowns, and stay at home orders has taken a toll on the economy in Northern VA just like all parts of the country. The ongoing health crisis we face as a country has led businesses to reduce or discontinue their services altogether. As we all know this pause in the economy has greatly impacted the workforce and as a result, many people have been laid off or furloughed. Naturally, that would lead many to believe we might see a rush of foreclosures like we saw in  2008 on its way this Fall. However, let’s keep in mind, this recession isn’t the same as the last recession and there is no wave of foreclosures on the way this fall in Northern VA.

The concern of foreclosures based on the large number of those out of work is one that we need to understand fully. There are three reasons we won’t see a rush of foreclosures this fall in Northern VA: forbearance extension options, supply and demand metrics, and strong homeowner equity.

1. Forbearance Extension

According to the Consumer Financial Protection Bureau (CFPB), forbearance is “when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage.”  This option is for those who need immediate relief. In today’s economy in Northern VA and across the country, the CFPB has given homeowners a way to extend their forbearance, which will assist those families who need it at this critical time.

Under the CARES Act, the CFPB notes:

 “If you experience financial hardship due to the coronavirus pandemic, you have a right to request and obtain a forbearance for up to 180 days. You also have the right to request and obtain an extension for up to another 180 days (for a total of up to 360 days).” 

2. Homeowner Equity

Home Equity is strong for many homeowners in Northern VA. This savings is another reason why we won’t see substantial foreclosures in the near future. Today’s homeowners who are in forbearance actually have more equity in their homes than what the market experienced in 2008.

The Mortgage Monitor report from Black Knight shows that of all active forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes (See graph below):

Black Knight notes:

“The high level of equity provides options for homeowners, policymakers, mortgage investors and servicers in helping to avoid downstream foreclosure activity and default-related losses.”

3. Low Supply and High Demand

Northern VA real estate market is arguably stronger now, than pre COVID. The one aspect of the market that is lagging is the available supply of listings on the market. Low supply has been an ongoing challenge from the last few years, but has been a bit more challenging since April. There is currently only 30 days of available supply of listings which is 47% lower than July of last year. (See Below)

With a continued low supply of listings in Northern VA and high demand from potential buyers, any home sellers needing to sell to get out from under a mortgage will be able to sell. This will keep homes out of foreclosure, and salvage sellers credit score.

Bottom Line

Many think we may see a wave of foreclosures in Northern VA this fall, but the facts just don’t add up in this case. Today’s real estate market is very different from 2008 when we saw many homeowners walk away when they owed more than their homes were worth. This time, equity is stronger and plans are in place to help those affected weather the storm.