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How Will an Uptick in Foreclosures Affect Real Estate Markets?

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Neil Goradia

By Neil Goradia

As of the first quarter of 2021, there were 33,699 properties with foreclosure filings in the U.S., according to ATTOM Data Solutions. That’s up 9% from the previous quarter, but down 78% from the first quarter of 2020—largely pre-pandemic. The rate of foreclosure in Colorado is less than 2%, which is historically low, however, for most of last year, unemployment rates in Colorado were more than 10%. The reason there haven’t been more foreclosures is due to government foreclosure moratoriums and banks granting mortgage forbearances to homeowners negatively affected by the COVID-19 pandemic.

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Various government agencies are trying to help those in need, and I commend their efforts. There will always be a healthy debate over just how much the government should be involved. We have put together an extensive list of useful resources for current Denver-based homeowners seeking foreclosure financial assistance. If you have provided other useful resources in your market, please share in the comments below.

However, owners of rental properties were put in a precarious situation last year when tenants were unable to pay. The Centers for Disease Control and Prevention banned evictions due to the public health crisis. Earlier this month, the U.S. District Court in Washington, D.C., struck down a CDC’s nationwide eviction moratorium, However, there is a stay on the ruling as it goes under appeal (and may go to the Supreme Court).

Congress has allocated nearly $50 billion in rental assistance through the stimulus and relief bills, which state and local governments are in the process of distributing. These funds help tenants pay their bills and provide relief to housing providers so they may avoid foreclosure.

When both the eviction and foreclosure moratoriums are lifted, we will likely see a greater number of properties hit our real estate markets—for better or worse. I’m not predicting doom and gloom across the country, however, I think it is prudent to at least consider how the pending foreclosures could affect our respective markets in the future.

If many houses hit the market all at once and at lower prices, then it seems reasonable to conclude that house prices, in general, will fall. If the houses are in poor condition, it may have a negative effect. Zombie foreclosures, for example, are houses that people have walked away from because they got behind on their mortgages, leaving them vacant. When a house is not being taken care of, it deteriorates. But there are cities across the country, like New York, that are creating initiatives to attack this very problem.

In my opinion, I believe that an onslaught of foreclosures will have a negative impact on the housing market in the medium-term future. There are so many things at play. There have been new proposals to ban foreclosures until 2022. Swift distribution of rental assistance will also help. When forbearance programs end, homeowners may want to sell before facing foreclosure if they’re still experiencing financial hardship. Even those in forbearance programs have an average of $87,000 in equity right now, according to CoreLogic.

I talked to a lender based in Indianapolis, who specializes in working with out-of-state investors, and she had this to say about foreclosures, “I don’t think foreclosures will be as bad as many people think due to measures put in place to help owners avoid foreclosure and stay in their home.” To listen to the entire conversation check out this call titled, “Indianapolis Investment Property Lender – A Coffee Break Call.”

I would love to hear your thoughts. As real estate professionals, how much of an impact will foreclosures have on your market in the future? Do you get contacted by homeowners asking how to stop foreclosures? Please leave your comments below.

Neil Goradia is the founder of Go Indy Real Estate in Indianapolis and a Colorado real estate investor. In addition to being a sales practitioner, he has a background in fix and flips, land development, and private lending. Connect with him on Facebook.

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Comments 4

  1. Pingback: How Will an Uptick in Foreclosures Affect Real Estate Markets? - South Carolina REALTORS

  2. I have to believe there will be an uptick. Especially because we still haven’t accounted for those who were laid off, cannot go back to work or be under-employed.
    The question who will buy these listings? Will it be owner occupants if there is enough of them, or will we see investors, hedge funds, etc., purchase these homes at below market prices, but not to resell, but to have a sale-leaseback to the sellers of the property? I believe it will be the latter.
    The sellers will have the cash on their possession while staying in their home and only worrying about paying a rent.
    You can see in these bidding wars currently, that the winning bids are going to those with cash that are foregoing the appraisal contingency, therefore leaving those with little down payment(ie, FHA or VA loans, etc) out of loop.
    One of Maslow’s hierarchy of needs is shelter, and therefore, those sellers who are selling to investors creating these sale-lease backs will be the nee owners of real estate. It’s certainly safer than Bitcoin.

  3. More inventory would ease demand. Level out Sale Prices.Likely to see more flippers in this sector.More cash offers from investors. This could effect the rental market driving up rents and putting supply/demand stress on availability of rental properties.

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