Where Are the For Sale Signs?

As I drive around my neighborhood the absence of homes for sale is surprising, no for sale signs grace any of the neatly trimmed lawns. The custom homebuilder across the street seems to be selling his $1.5 million homes as fast as he can build them. This is surprisingly happening in many parts of the country. If you are following the real estate market it is big news. There is a very low supply of homes.

Overall U.S. housing inventory measured by months of supply at the current sales pace hit its lowest level since Redfin began reporting the data in 2012.  The decline in the rate of home sales drove this measure of inventory up in May, but by June sales had rebounded, pushing the months of supply back down.  This is clear when we examine local markets as well.

U.S. housing inventory data extracted from Housing Tides tells the story of year-over-year changes during the last three months.

There are manipulative forces at play affecting the housing market making it much better than it should be in a recession. A key force in keeping homes of the market are the mortgage forbearance programs that have been put into effect earlier in 2020. According to the Mortgage Bankers Association (MBA) as of July 27, the MBA estimates 3.9 million homeowners are in forbearance plans. This is 7.8% of mortgage servicers' portfolios.

Black Knight is an analytic firm that monitors the mortgage market conditions. In their latest Mortgage Monitor for May 2020 they estimate 4.7 million homes in forbearance. Black Knight economist Andy Walden estimates that 90% of homeowners in forbearance plans have at least 10% equity in their homes. This provides a cushion from the risk of foreclosure, giving the homeowner an opportunity to sellout without a loss.

COVID-19 forbearance plans were broadly set up under initial three-month terms with the CARES Act allowing for at least six months of forbearance with an extension to 12 months upon borrower request for those in government-backed loans.

A homeowner that is in forbearance has no incentive to put that home on the market because the mortgage payment is deferred. With few job opportunities as many jobs disappeared there is no opportunity to relocate. The low supply of homes is an unintended consequence of the mortgage forbearance program. 

The market has never before seen these forbearance programs before. Even during the Great Recession these programs were unknown. We are experiencing the secondary impacts and their consequences. Quite possibly, a serendipitous moment for homebuilders and solvent homeowners will occur as demand exceeds supply and prices rise.

Housing Tides data show U.S. single-family housing permits reach highest level since May 2018.

If you are a homeowner or a homebuilder this will be a euphoric sweet spot in the market for you. Be prepared, it is bound to come to an end. Don’t expect this lack of for sale signs to continue.

When the forbearance programs phase out and these nearly 4 million homeowners have to write mortgage loan checks again every month, a flood of supply will hit the markets as the number of listings moves toward equilibrium.

Once again when we see the effects of forbearance programs end, the dynamics of the real estate market will change. Subscribe to Housing Tides interactive interface to monitor market research and trends.