During the course of the pandemic, approximately 1 and a half million homeowners across the U.S. turned to forbearance with their banks to avoid foreclosure due to job loss, or an unexpected COVID-related financial crisis. Now, as many as a third of those homeowners will see forbearance expire between now and the end of October. But, will enough of those homeowners opt to sell, flooding the local housing market with enough new inventory to cause home values to tumble. The short answer appears to be, ‘not a chance.’
“Are we going to see some of it,” asked Las Vegas Realtors president Aldo Martinez? “Yeah, maybe, but not to what they’re building up,” he added, referring to some who believe the end of forbearance will pop the housing bubble.
The reason, according to economist Mike PeQueen of Hightower Las Vegas is, homeowners coming out of forbearance will have options other than selling. “Some of the people will decide to make up the past payments because they're not forgiven,” PeQueen said. “Some will choose to refinance their mortgage and wrap the balance that they owe into a new mortgage, and some will choose to sell the home.”
PeQueen says estimates by housing insiders like Zillow suggest only 25-percent of homeowners in forbearance will decide to sell, but it won’t come close to flooding the market with enough inventory to cause Las Vegas housing prices to plunge.
“We’ve got a below-average inventory of homes right now. We've got more than average demand because the millennials are coming of age. And, we've got very low-interest rates. So the market can probably absorb a pretty big number of new homes on the market without doing any damage,” PeQueen said.
Another important factor should also offset any unknown number of homes suddenly hitting the market, of the so-called ‘shadow inventory’ as forbearance ends. Homebuilders are still years away from catching up with the demand for new homes in Southern Nevada.
“We're at least 3 years before we can catch up,” said Martinez, “if the builders are able to start ramping up the building to catch up with the demand.” That backlog will continue to lead to a tight housing inventory, and hopefully prevent a housing bubble from popping. “it’s going to be like this for a little bit, and it's not going to be six months,” said Martinez. “I see maybe three to four years.”
There are, however, unforeseen circumstances that could destabilize the local housing market like a jump in interest rates because of rising inflation. According to Martinez, “if they shot the interest rates up to 6 or 7 percent, there goes the breaks on the market because everything that's making this vehicle continue to roll is 3 percent.”