Buying income properties is a great way for real estate investors to secure ongoing revenue streams. But purchasing homes hasn't been easy this year for one big reason: inventory has been lacking.
In June, there was a mere 2.6-month supply of available homes, well below the four- to five-month supply that's generally needed to meet buyer demand. And given that mortgage rates have been sitting near record lows, demand is exceptionally high right now.
Still, housing inventory may pick up this fall for one big reason. And that's something investors should keep on their radar.
Why more homes could hit the market this fall
Early on in the pandemic, many homeowners experienced financial hardships resulting from job or income loss. To prevent a massive wave of foreclosures, mortgage borrowers were given the option to put their home loans into forbearance as part of the CARES Act, which was signed into law in March 2020.
Normally, mortgage loan servicers can deny forbearance requests as they see fit. During the pandemic, however, all borrowers were entitled to pause their mortgage payments upon attesting to a financial hardship.
Initially, forbearance under the CARES Act was set to last 12 months, but it was later extended to 18 months. What this means is that homeowners who put their mortgages into forbearance early on in the pandemic will soon be coming up on the end of that protection. And those who aren't in a position to start paying their home loans may opt to sell their properties instead.
Under normal circumstances, selling a home upon a forbearance exit could potentially mean having to go through a short sale -- a cumbersome process that can have negative repercussions on one's credit score. But these days, home values are up on a national level, so much so that properties with loans in forbearance may be worth a lot more than they were when the pandemic began. And so those homeowners may, in the coming months, opt to sell their homes at a time when they can actually cover their remaining mortgage balances and walk away clean.
For real estate investors, this could be a huge opportunity. Generally, the fall months are far from a peak period with regard to new real estate listings. But if forbearance exits prompt an uptick in seller activity, it could make it easier for investors to scoop up income properties at a time when inventory has been sorely lacking. It could also help put an end to widespread bidding wars, which have been a mainstay in today's residential housing market.
Now one thing investors should know is that loan servicers are being strongly urged to work with mortgage borrowers to help them stay in their homes as they exit forbearance. The Consumer Financial Protection Bureau had made it clear that servicers are expected to modify mortgage loans as needed to make them easier for homeowners exiting forbearance to get current on. But still, some borrowers may actively choose to sell their homes and downsize or rent for a while to get back on their feet. And so real estate investors looking to expand their portfolios should pay attention to how listings trend as fall kicks into gear.