Few Recent Homebuyers Face Risk of Foreclosure
Even if they lose their jobs, recent buyers are safe due to boom times of late.
Spare the lifeboats in most places as Redfin reports that only 3.4% of U.S. homeowners who bought in the last two years would be underwater on their mortgage if home values were to fall 4% by the end of 2023 or they lose their jobs.
Prices would need to fall by double digits in 2023—a highly unlikely scenario—for the typical pandemic home purchase to lose value, the real estate brokerage said.
Homebuyers in Sacramento and Phoenix are at higher risk of falling underwater on their mortgage, while Florida homeowners are at even lower risk.
Floridians are in good shape because home prices there have risen even more dramatically than they have in the rest of the country and they haven’t come close to falling, Redfin senior economist Sheharyar Bokhari said in prepared remarks.
Many Have Already Earned Plenty of Equity
Redfin estimated that the typical home bought during the past two years will have gained $27,000 in value, even with prices falling 4% next year.
If home prices fall 8% in 2023—more than the expected drop—still just 6.3% of new homeowners would be underwater. Prices would need to fall about 12% for the share of underwater homeowners to reach double digits.
Buyers with low fixed mortgage payments and good enough credit who purchased coming out of the pandemic are likely to have already earned plentiful equity because prices skyrocketed so much during the pandemic and because they were likely to have made big down payments.
Bokhari said in prepared remarks, “Even if a homeowner is at risk of falling behind on their mortgage payments next year—say they lose their job and inflation has claimed a big chunk of their savings—having equity means they could sell instead of face foreclosure.