The Future Of Our Market

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By Heather M. Johnston, C.O.O. - The Spaniak Team, eXp Realty

If you are one of the millions of Americans who have been financially impacted by the pandemic, you may have thought about what the future looks like in terms of housing.

As our economy faces uncertainty, many are wondering how this will affect real estate. It is a simple fact that as businesses shutter & people lose income, their ability to afford housing is challenged. What that could potentially mean in the larger picture is that there are more ‘distressed’ properties on the market. Distressed housing means when a seller is in a situation that causes an adjustment in price that is often significantly lower than ‘fair market value’ on the open market. There are many influences that can cause a property to become distressed, but for the purposes of this article we’ll focus on the mortgage forbearance program & the pandemic shutdowns.

In March 2020, the federal government granted permission to major banks & mortgage lenders to allow for a forbearance program through the CARES Act. Over 4 million Americans across the country opted for this opportunity. What a large portion of consumers did not understand, however, is that the forbearance was not forgiveness - it was simply deferment, with potentially devastating consequences. Since the Act did not explicitly state how payments were to be made up at the end of the deferment period, it has been up to the lending institutions themselves to determine whether borrowers would be required to make lump-sum payments of their past-due balances - often known as balloon payments.

When borrowers cannot afford to pay their mortgages and fall behind in payments, they can quickly become in default on their loans. Those who need or want to sell their homes may find that they require special accommodations in order to be able to sell their mortgaged properties, if they are in a position of owing more than what the properties are worth, or if they are simply unable to keep up with payments and owe back payments to their lender.

What happens when a relatively large number of homeowners find themselves in a similar situation all at once? Well, if they flood the market with distressed inventory it has the potential to drive down pricing for standard home sales as well. In a typical market cycle, those homes sold as short sales and bank-owned (known in real estate jargon as REO for Real Estate Owned) are considered outliers in terms of pricing data. Real estate agents adjust for the distressed nature of those sales, and the rest of residential sales in a given market remain relatively unscathed by the lower prices of the distressed properties.

When the amount of these kinds of sales reaches a higher scale - such as in the 2008 housing crisis - then the affect becomes more widespread. It remains uncertain whether the 2021 housing market will see a large scale distressed sector like in 2008, but many economists and real estate experts are predicting that pricing is going to be influenced by these factors.

Currently, there is a lack of inventory in our Northbrook & North Shore markets. As the long term effects of the changes to our economy become known, this may become the reverse. In the next 3-6 months there is a strong possibility that there will be a dramatic increase in properties available for sale in our local marketplace, increasing competition to secure buyers and market time for sellers. While we cannot say for certain that prices will go down as a result, it is our belief that the shortage of inventory we are experiencing right now is only temporary.

The Spaniak Team at eXp Realty is one of the top selling real estate teams on Chicago’s North Shore. If you are considering a move and want to discuss your options, please contact The Spaniak Team at (847) 318-3431 or at [email protected]. You can also visit us online at www.SpaniakTeam.com.

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