How Mortgage Forbearance Shapes the Housing Market and Buyer Confidence
Mortgage forbearance can have a powerful effect on the housing market, influencing everything from property values and inventory to buyer behavior and local confidence. While the term forbearance often suggests financial distress, it is not always a sign of market instability. In fact, as demonstrated during the COVID-19 pandemic, widespread forbearance programs helped stabilize the housing market by preventing a flood of foreclosures and allowing most homeowners to stay in their homes.
A key example came in late 2020 when researchers estimated that mortgage forbearance programs helped about 500,000 borrowers avoid foreclosure in just the fourth quarter of that year. By delaying mortgage payments without triggering defaults, forbearance protected both individual homeowners and broader market conditions.
For sellers, being in forbearance introduces both opportunity and complexity. If a homeowner’s financial struggles continue, selling the property might be a practical way to pay off the mortgage and avoid foreclosure—especially if home values have increased and equity has grown. Still, sellers in forbearance must understand what they owe, including any accrued interest or fees, and should work closely with their real estate agent and mortgage servicer to navigate the process. If the home is worth less than the remaining balance, options like a short sale or deed in lieu of foreclosure may be required.
Selling while in forbearance can also raise concerns among buyers. Some buyers might worry that financial hardship led to deferred maintenance or may question the overall stability of the neighborhood if forbearance is widespread in the area. However, a knowledgeable agent can help ease those concerns by providing market data, encouraging a thorough home inspection, and explaining the seller’s situation honestly and clearly.
Forbearance can also influence local home pricing and inventory. According to a Federal Reserve study, the availability of forbearance programs during the pandemic likely contributed to a 0.6 percentage point increase in home prices between April and August 2020. By reducing the number of homes forced onto the market due to foreclosure, forbearance helped support prices during a volatile economic time. It also allowed more people to stay employed and housed, which in turn helped keep inventory low and demand strong.
Foreclosure is always a risk when homeowners are in forbearance, particularly if the underlying financial hardship is long-term. But most forbearance cases do not end in foreclosure. Instead, many borrowers resume payments or work out new arrangements with their lenders, such as loan modifications or deferment plans. This reality helped prevent a repeat of the 2008 housing crash, when a lack of available relief options led to widespread defaults and collapsing home values.
Still, buyer confidence can waver if forbearance levels are elevated in a particular region. A spike in forbearance may reflect deeper economic issues such as high unemployment, a recent disaster, or regional instability. Buyers might respond by submitting lower offers or avoiding certain areas altogether. That said, with transparent communication and updated market insights, real estate agents can guide buyers through their concerns and help them assess property value and long-term potential.
For real estate professionals, navigating transactions involving forbearance requires strong collaboration with mortgage servicers and clear communication with clients. Agents should never offer financial advice regarding forbearance or mortgage terms but can point clients to helpful resources such as Freddie Mac, Fannie Mae, the FHA, the VA, and HUD-approved housing counselors.
Ultimately, mortgage forbearance serves as a vital buffer during times of crisis. Data from the National Bureau of Economic Research shows that 94% of mortgage defaults stem from sudden income loss. During the COVID-19 downturn, forbearance gave struggling homeowners a chance to recover and remain housed. Studies by JPMorgan Chase confirm that most borrowers successfully exited forbearance and resumed payments, avoiding foreclosure and preventing further damage to the market.
The long-term success of forbearance depends on how well homeowners can transition once their pause period ends. Exit options such as repayment plans, loan modifications, or deferrals must match the borrower’s financial reality. When they do, forbearance becomes more than a stopgap—it becomes a safeguard for families, communities, and the housing economy as a whole.