Pandemic driven equity gains a lifeline for some homeowners

2-minute, 30-second read
The COVID-19 pandemic affirmed the old saw that a rising tide lifts all boats. It sounds like a contradiction, but it’s gospel for local homeowners caught in the grips of the pandemic’s economic stress.

At the end of the 2021 fourth quarter, the share of underwater Tri-Cities mortgaged properties was down 81% from the 2018 peak and 68% lower than the region’s pre-pandemic level. They were also at the lowest point since 2016. That’s when the local market came out of the starting blocks and began a six-year record-setting pace.

Chalk almost all of that outcome for distressed homeowners to a couple of years of double-digit equity gains on top of some healthy pre-pandemic gains. While those gains boosted many homeowners into an equity-rich class, it was also a lifeline to those in delinquent mortgage territory. It, and a foreclosure forbearance, was a safety net for a little more than 6,000 local homeowners who owed more on their mortgage in 2019 than the property’s estimated value.

During normal times it’s likely that many of those properties would have gone to foreclosure or some other form of distressed sale. But the pandemic years were anything but normal.

Some predicted a wave of foreclosures when the forbearance was lifted. It didn’t happen. The equity build-up gave owners options. And many lenders were accommodating with plans to keep owners in their homes instead of foreclosing.

Now it looks like the foreclosure part of the market is moving back to normal. January’s foreclosures were up but nowhere near the local historical norms. It matches the distressed properties conditions nationwide.

“We’re likely to continue seeing large year-over-year percentage increases for the rest of the year,” says Rick Sharga, executive vice president of RealtyTrac, an Attom Data company. “But it’s also likely that foreclosure activity will remain below historically normal levels until the end of 2022.”

Sharga says that January’s uptick in foreclosure activity wasn’t a surprise. “Foreclosures typically slow down during the holidays in November and December and pick back up after the first of the year,” he says. “This year, the increases were probably a little more dramatic than usual since foreclosure restrictions placed on mortgage servicers by the CFPB expired at the end of December.”

According to current local loan performance data from CoreLogic, the share of mortgages in the Kingsport-Bristol metro that are delinquents is 4.2%, down from 6% this time last year. The seriously delinquent rate is 2.1%, down from 3.5% last year.

The Johnson City metro area delinquency rate is 3.2%, down from 5.2% last year, and the seriously delinquent rate is 1.7%. This time last year it was 3.1%.

Going forward, the local jobs and wage economy plus the inflation rate will begin to exert more influence on homeowners’ pocketbook issues. The current inflation rate hit 7.5%. Many economists think it has peaked and will start declining as the FED launched its inflation-fighting strategies.

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Categories: REAL ESTATE