Report: Gov’t Intervention Avoided a Housing Market Meltdown

By Kerry Smith

If not for forbearance programs, the market could have seen as many foreclosures as it did during the Great Recession, according to Nationwide Housing’s latest report.

COLUMBUS, Ohio – A spike in mortgage delinquencies today could have been almost as severe as the depths of the Great Recession, a new report found, but government intervention kept today’s at-risk homeowners from going into foreclosure, thereby supporting the housing market.

Data from the latest Health of Housing Markets Report (HoHM Report) from Nationwide economics found that mortgages delinquent for 90 days or more have peaked in nearly all corners of the United States, reaching levels nearly as severe as the housing market saw in 2010 during the housing bust.

But thanks to government forbearance measures introduced earlier in the year to help homeowners survive the pandemic-caused economic downturn, current delinquencies aren’t turning into foreclosures, leaving the housing market stable and demand near all-time highs.

“The spike in mortgage delinquencies would normally have had a significantly negative impact, but delinquencies in the current environment should not be viewed as they have been in the past due to government policy changes,” says Nationwide Senior Vice President and Chief Economist David Berson. “It seems the federal government learned a valuable lesson from the Great Recession, realizing that massive and timely forbearance policies were necessary. As a result, many of these loans have not slipped into foreclosure.”

Berson expects forbearance options to be extended further under the incoming Biden administration.

The quarterly HoHM report measures the health of the U.S. housing market for the nation and for 400 metropolitan statistical areas (MSAs) and divisions. It focuses on the entire housing market’s health, rather than a projection of house prices or home sales.

Mixed factors act as brake on recovery

The fourth quarter HoHM report finds the housing market in positive territory after adjusting for government intervention measures, but it’s still being weighed down by a mix of factors, chief among them the still recovering job market.

According to the U.S. Bureau of Labor Statistics, November marked the seventh consecutive month of job growth for the U.S. economy, but employment remains more than 10 million jobs in the hole compared with the peak prior to the COVID-19 recession that started in February. The national unemployment rate is still at recession levels.

Meanwhile, house price gains are accelerating in response to a persistent imbalance between market supply and demand. Throughout much of 2020, mortgage rates have remained historically low. Combined with a shift in housing preferences for “space” as many workers can work remotely and rapidly increasing levels of employment as the economy heals from the downturn, the report finds that housing prices have been rising rapidly nationwide.

“Even with low mortgage rates, which we expect will remain near record lows for the foreseeable future, rapidly rising prices are a risk for housing affordability, especially if inventory levels remain as low as expected,” Berson says.

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