At the height of the COVID-19 pandemic, more than 7.2 million homeowners in the United States were enrolled in home mortgage forbearance programs, which allowed some borrowers to suspend payments. What followed was one of the fastest recoveries in American history. The number of borrowers in forbearance programs is now down to 1.7 million.
But that number will soon be reduced to zero.
The Biden-Harris administration has made it clear that it has no plans to extend the home-mortgage moratorium once it expires on September 30. Borrowers will not exit the program all at once but will be phased out over the next few months.
As Fortune has previously reported, this could trigger a massive upheaval in the housing market. With more than 80 million homeowners in the United States, 1.7 million doesn't sound like a lot, until you realize that there are just over 600,000 homes currently for sale on Realtor.com. In fact, this year's housing inventory hit a 40-year low. So if even a fraction of the 1.7 million struggling borrowers choose to sell their homes rather than resume payments, it could send a shock through the housing market.
The end of the program will result in an 11% increase in U.S. housing inventory by later this year. While this would almost transform the housing market from a seller's market to a buyer's market, it would cool it a bit. America's housing market was already cooling even before the moratorium ended. U.S. housing inventory fell by a whopping 50% between April 2020 and April 2021, before resuming growth. In June, the inventory of homes increased by 8.8% and again by 10.4% in July. Median home prices rose 17.2% last year and are expected to slow slightly to 3.2% over the next 12 months.
A strong housing market means that most homeowners facing payments difficulties have positive home equity. So if these owners decide to stop paying, they can sell their homes. This is a far cry from the situation during the Great Recession. Millions of underwater borrowers, who owed more on their mortgages than their homes were worth, were forced to sell their homes. But housing inventories are still expected to rise sharply in coming months.