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There is some talk about so called “zombie homes” ushering in the next housing crash. So what are zombie homes or zombie foreclosures? Simply put, they are homes that are vacated by home owners who are in the pre-foreclosure process.
So how big a problem is this? According to numbers published in the Salt Lake Realtor magazine, June 2021 edition, vacant zombie homes represent about 1/100th of one percent of all housing stock in the US. The number of total vacant homes in the US, including zombie homes, may be more in the one percent range.
In either case, the number is small. However, there is a mortgage moratorium in place until the end of this month (June 2021). This moratorium, which restricts foreclosures, has been in place for well over a year, so what about all that pent up foreclosure demand?
CBS News had a headline news story this month stating; “With moratorium ending, more than 8 million households face foreclosure or eviction”. That sounds like a big number. So, is there a real threat that the market will be flooded with foreclosures beginning next month? First off, the 8 million figure is a worse case scenario and it includes rentals. Renter evictions are a real problem, but do not have the direct correlation to housing prices like foreclosures do, so they need to be separated out from the foreclosure numbers.
There are two statistics that are important in this discussion. The first is early stage delinquency rates and the second is actual foreclosure rates. According to Mortgage News Daily, early stage delinquencies have averaged around 5% of the total home mortgages. That compares to 6% in the first quarter of 2021 and 8% the 2nd quarter of 2020.
As you can see, this number is going down. Not all early stage delinquencies end in foreclosure. Actual foreclosures average about 1% of the total home mortgages. Foreclosures bottomed out in 2006 when they represented only 0.58% of all mortgages. The high was in 2010 when the rate was 2.23%.
Because of the moratorium, there have been very few foreclosures the past year or more. So, how many foreclosures will there be after the moratorium is lifted? Based on the numbers above and considering that the early delinquency numbers are approaching historic averages, the actual number of foreclosures may not be that different than the historic average of about 1% of all mortgages.
For that reason and the following reasons, the number of foreclosures this year or even next year will likely have only a small impact on the housing market.
Congress has set aside money to help with delinquent mortgages.
Foreclosures take a long time.
Lending requirements have been much higher recently than prior to the previous foreclosure crisis.
With the exceptionally high appreciation rates and short marketing times, most people will sell before the foreclosure finalizes.
The bottom line is, this scary story, like a lot of scary stories, is not that scary when you look at the facts.
- Jeff Jorgensen
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