What of mortgage forbearance, then? With the foreclosure moratorium behind us and the final deadline for forbearance requests ending in two weeks (September 30th), will we see a wave of delayed foreclosures overtake the booming housing market with distressed inventory?
This, too, seems unlikely. While forbearance was heavily utilized at the beginning of the pandemic, lenders and borrowers have both made significant strides in righting the ship. Even if all 1.6 MM borrowers were to sell or be foreclosed upon in the next twelve months (which is not how any of this works), total housing inventory would STILL be below the ‘06 peak, all against a backdrop of both millennial first-time homebuyers and institutional investors readying dry powder for attractive opportunities.
Anyway, here’s a paper from the Fed about how restricting supply with forbearance while printing money at the same time propped up the housing market (ya think?). We wrote about one year ago that in the long run, homes would invariably change hands between housing longs (current homeowners, who tend to be older and wealthier) and housing shorts (current renters, who tend to be younger and less wealthy). The only effect of monetary policy and forbearance on this trade was to determine the price level at which it occurred, which directly transfers wealth from one of those groups to the other.
Policy makers in a crisis have to appeal to a variety of constituencies, all while finding a way to minimize permanent damage to people or institutions, so it’s probably unfair to be so reductive in our analysis. Besides, it’s not like the Fed has any particular reason to favor higher asset prices.
Rest of Resi