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By Diana Mangan, Realtor & Resident Would-be home buyers who are waiting for a surge in foreclosures and for prices to plunge are likely to find themselves facing even higher prices next year? To add potential insult to injury, many forecasts suggest that home buyers will be facing higher interest rates. There are many reasons why it's not like the 2008 housing crisis. First, the economic impacts of the "COVID crisis" have been largely concentrated in retail stores, bars, restaurants, and hotels, while workers in high-wage sectors were relatively insulated. This group of high-wage workers not only remained employed at a much higher rate, but they had a renewed passion for homeownership because of the nature of the crisis, increased flexibility due to remote working, and the lowest mortgage rates ever recorded. Housing demand became even more ferocious and solid price growth before and during COVID-19 has created a market where 98.9 percent of homeowners in California have home equity. However, the economy also had much better fundamentals coming into the crisis. COVID was a huge shock, but one happening to what was otherwise a relatively healthy economy. Home buyers since the Great Recession have tended to have higher levels of income, above-average credit scores, and much larger down-payments. In addition, the amount of home equity that homeowners liquidated to spend on cars, boats, RVs, and vacations was a fraction of what it was back in 2006, even though prices are much higher than they were back then. This all adds up to a much smaller amount of systemic risk than was present in the economy in 2008. And better fundamentals have already kept California more resilient. Delinquencies peaked last year at 6.8 percent and have been falling for the past four quarters consecutively — far below the 2009 peak of 11.3 percent. In addition, the statistics from the federal forbearance program suggest several encouraging conclusions. Last year, nearly 8.5 percent of mortgages were in forbearance. Now, that number is just 3 percent. According to these statistics, over 40 percent never missed any payments, missed some but already paid them all back, or have since paid their loan off in full. Another 40 percent have come to a resolution with their banks, who seem to be taking more of a "we're all in this together" approach this time around. Taking all of this into consideration, it suggests that the number of potential foreclosures will be in the 20,000- 30,000 range, and that's on the high side. This pales to the 1.125 million foreclosures started between 2008 and 2010. This isn't to say that every homeowner will be able to stay in their home or that every investor will decide to remain in business. Some folks have faced serious financial distress, don't have a lot of home equity, and will eventually foreclose. However, the number of folks this is likely to happen to is a fraction of what it was last time. As such, would-be homebuyers may not get the flood of inventory or the drop in prices that they're waiting for. Depending on how long they decide to wait, they may only succeed in paying more for their homes at even higher rates of interest. Source: California Association of Realtors Second Housing Crisis Unlikely REAL ESTATE NEWS REAL ESTATE NEWS | LIFE IN SOLERA | NOVEMBER 2021 | 13

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