When the global economy plunged into recession last year, homeowners braced themselves for a blow. The last time spending, of course, fell through, followed by a painful housing collapse.
The housing market after COVID did not develop as expected. During a pandemic house prices skyrocketed, mortgage rates have fallen and foreclosures have all but disappeared.
Generous federal government refusal of mortgage The program has played a prominent role in a sustainable housing market. By allowing borrowers to pass payments without penalties and with some caveats, leniency lowers property values.
While the majority of abstaining borrowers were out of debt as of March, about 2.2 million homeowners still have mortgage deferrals. “This is still a very significant number,” says Andrew Howout, senior vice president of the Federal Reserve Bank of New York.
Haughwout and other analysts at New York Fed went into details and made the following conclusions:
1. The number of late payments has decreased – and they will remain well below the levels of the Great Recession.
Amid the pandemic, the overall rate of mortgage delinquency was at its lowest at 1.3 percent. During the pandemic, despite a sharp rise in unemployment, the crime rate fell to 0.9 percent. Meanwhile, about 2.9% of American homeowners are lenient and don’t pay.
Joel Scully, senior data strategist at the New York Fed, uses simple arithmetic to create a worst-case scenario: If all of these borrowers fail to pay off their mortgages after the grace period, the delinquency rate would rise to 3.8 percent.
However, this figure will remain well below the 2010 peak of 6.3 percent. During the Great Recession, the flood of foreclosures drove home prices down. However, this time, homeowners have a lot more equity in their homes – and therefore much less likely to give up foreclosures or short sales.
2. Many homeowners have shown leniency but never missed a payment.
Roughly 30 to 40 percent of homeowners applied to terminate their contract but continued to pay the mortgage. New York Fed’s Donghun Lee says this shows that many borrowers considered tolerance an “insurance policy” but never used it.
The borrowers were frightened enough by the direction of the economy that they asked for leniency in case they needed it. In the end, their financial situation remained strong enough that they never missed payments.
3. Patient homeowners used some of their missed payments to pay off their credit card debt.
Among borrowers who have shown patience, they entered a recession with an average of $ 9,000 in credit card accounts. These balances fell by an average of 23 percent during March.
Homeowners who had a mortgage but didn’t go for leniency went into a recession with $ 6,000 in cards and paid their balances 15 percent.
Analysts’ takeaway: Many homeowners have used a combination of spending cuts and incentive payments to reduce credit card debt. Those who have shown patience have redirected mortgage payments towards an even more aggressive reduction in credit card balances.
4. Low-income homeowners were more likely to be patient.
Abstinence patterns reflect a broader trend in a two-way economy in which wealthy Americans thrive and low-income households struggle.
Homeowners in all of the following categories are more likely to be patient: borrowers living in low-income areas, those with lower credit ratings, those with FHA loans, and those who have not paid their mortgages before. pandemics.
Borrowers with higher credit ratings and higher incomes were less likely to be patient and more likely to leave quickly.
5. Patience has helped create an extreme shortage of homes for sale.
After the pandemic, the number of homes for sale fell to an all-time low. “It’s impossible to know exactly how many homeowners were able to stay in their homes because of patience,” says Howout.
However, it is clear that the generous aid package has impacted the housing market, preventing sales from poor sales and thus limiting supply. “We haven’t seen a lot of homes listed for sale,” Howeout says.