If you're a home flipper or landlord on the hunt for a new investment, then keep your eyes on early next year. Two reports released this week signal an incoming wave of foreclosures -- likely hitting in the first half of 2021, once homeowners have exhausted their mortgage forbearance options allowed under the CARES Act. Those relief options allow borrowers to hit pause on their loans for a total of 360 days (two separate 180-day terms) that started in March 2020.
Foreclosure moratoria are also set to expire in December, opening the door for more lenders to take action against delinquent borrowers in the new year.
And the number of those delinquent borrowers? They're reaching record-level highs. Let's look at the new data released this week -- and how it may impact investors' options come 2021.
The proof is in the numbers
According to CoreLogic (NYSE: CLGX), the 150-day delinquency rate just hit its highest level in two decades. And the share of all loans currently in some stage of delinquency? That's now at 6.6% -- up 2.9 percentage points from the year-ago period.
Here's how the totals broke down by delinquency stage:
- 30 to 59 days delinquent: 1.6% of all mortgage loans
- 60 to 89 days delinquent: 0.8%
- 90+ days delinquent: 4.3%
- 150+ days delinquent: 1.2%
Foreclosure rates are actually quite low (thanks to the forbearance options noted above), but with many of these homeowners facing income or job loss, those looming mortgage payments could pose a serious financial threat to many.
As Frank Martell, president and CEO of CoreLogic, puts it: "Forbearance programs continue to reduce the flow of homes into foreclosure and distressed sales and have been the key to helping many families who have been particularly hard hit by the pandemic. Even though foreclosure rates are at a historic low, the spike in 150-day past-due loans points to bumpy waters ahead."
Where those foreclosures may hit
Another report, this time by ATTOM Data Solutions, points to where those foreclosure waves may be coming. According to the numbers released this week, Louisiana, New York, New Jersey, Mississippi, and Florida have the highest statewide shares of delinquent loans right now.
At the metro level, these are the markets you should keep your eye on as forbearance periods end:
- Miami (12% of all loans)
- New York (11%)
- Las Vegas (10%)
- Houston (10%)
- Chicago (8%)
The bottom line? Foreclosures are in short supply right now, but data points to an uptick in these and other distressed properties come early 2021. If you're on the search for your next fix-and-flip or rental property, keep an eye on the numbers (especially market-level ones), and be ready to act fast once forbearance periods start to end. With inventory problems plaguing most markets, you can bet there will be stiff competition when these properties become available.