Real Estate News & Commentary

Will We See a Flood of Short Sales in 2021?

Expertise: Real Estate News & Commentary
22 Articles Written
short sale sign on pole with copy space

If you asked me in 2018 or 2019 where I thought the market was going, I’d give pretty much the same answer: “Unless World War 3 breaks out or something totally crazy happens, it’s looking good!”

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Oh, man. I should have kept my mouth shut. Nobody saw a global pandemic coming, and while the real estate market has largely remained steady, the entire fallout from March to December hasn’t even started in many respects. We will likely be halfway through 2021 before we really start seeing the consequences of this crazy year.

One thing I didn’t expect 2020 to bring back up: the possibility of short sales. In light of years of steady appreciation, I still feel that we are a long way off from seeing a flood of short sales. But let’s find out what other real estate agents are saying thanks to a poll from RealEstateBees.com.

Related: Where Is the Housing Market Headed in 2021? Top 10 Predictions From an Economic Expert

What Is a Short Sale?

If you don't know what a short sale is, I'll sum it up quickly. A homeowner who owes more than their house is worth needs permission from the bank in order to sell, as the bank must approve taking a loss on the mortgage before closing. So, if Sally owes $140,000 on her home, but the prices have dropped and the home is now worth $100,000, Sally would need to convince her bank to take a $40,000 loss before she can sell.

These days, agents and short sale negotiators/facilitators handle the paperwork and negotiations with the bank to get the short sale approved.

Will We See More Short Sales in the Near Future?

The big question in the aforementioned Real Estate Bees survey was: "Do you think in the potential recession we will see a similar influx of short sales to the one caused by the recession of 2008?"

Related: Housing Markets Post-COVID: Which Ones Win? Which Lose?

Of the licensed agents polled, they were pretty much in line with my thoughts, with 15.1% saying they don’t think a recession is coming and 56.6% saying the number of short sales will be lower than in 2008. While some kind of downturn is inevitable due to the impact of the pandemic on unemployment, rent, and mortgage payments, homeowners have a ton of options before the market turns so bad that short sales are required.

I’m with the 56%-ers on this one. If there are short sales, there will be a fraction of those we saw in 2008-2011.

I really liked another question in this survey, asking how agents would prepare differently for short sales this time around. This was a good introspective question that I hope got my agent friends to think about how the market could shift and if they are at all prepared. Almost 3 in 10 (28.8%) said they would incorporate a streamlined short sale process into their existing business and 28.9% said they already are prepared for short sales in their business model. Among respondents, 26.9% will continue to do what they already are doing and don't believe there will be nearly as many short sales as the last downturn.

Opportunities in Recession Times

The last thing I’ll cover brings me right back to 2007 when I first heard about short sales and started processing them for an agent I worked for. I became so good, so quickly that other agents in the office were handing me short sale leads and asking me to process them. I’d only been licensed for a few months. That truly was the Wild West.

Related: 5 Ways the Next Recession Can Make You Rich

Survey responses to this question were surprising since nobody knew what short sales were way back when I got my license. It seems like agents still feel like their competition doesn’t have a clue. The question posed to agents by Real Estate Bees was: “What is the most important benefit of closing short sales as a Realtor?”

My favorite answer (40.4%) is that they are an easy opportunity to get more business as the competition does not know how to close them. Beneficial to investors, 21.1% said that it’s easier to find a buyer for short sales since investor demand for distressed properties is high. I agree with both of those!

The Bottom Line

In conclusion, per Real Estate Bees’ data and agent-respondent comments, it seems that agents are both better prepared for this round of short sales and really don’t see short sales flooding the market like they did in 2008. Unlike my dreadful prediction of where the market is headed, I’ll appeal to the majority of my colleagues on this one and completely agree.

Will we see short sales? Absolutely. Will it further drag the market down? Not likely!

For more on Realtors’ sentiments surrounding short sales, read the full survey on RealEstateBees.com.

What predictions do you have surrounding short sales and the next recession?

Join the discussion below.

Anson Young is the owner of Anson Property Group based in Denver, Colorado, which specializes in distressed property purchases, and author of Finding and Funding Great Deals. As a full-time real estate investor and agent for the past 10 years, he has completed over 100 wholesale deals and 75 flips. Anson Property Group is committed to changing communities, helping homeowners, and building long-term wealth. When not working, Anson can be found exploring the wilds of Colorado by hiking the Rocky Mountains with his family, reading favorite books to his son, and attending loud rock concerts.
    Sam NA New to Real Estate from Buena Park, CA
    Replied 2 months ago
    Thanks for the insight! Have a blessed day and anyone who is in orange county feel free to connect with me.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    Thanks for reading, Sam!!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 2 months ago
    We're only going to see a flood of short sales if the market goes down by quite a significant margin. It would seem the powers that be have decided that QE Infinity is the way to go and they will not allow another foreclosure crisis to hit like did in 2008. That, of course, can have other significant consequences.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    I totally agree Mr. Andrew... most people have a boatload of equity. If they wait until the market goes down that much, they missed 100 opportunities to get out from under the property.
    Tanya Johnson Real Estate Consultant from Saint Louis, MO
    Replied 2 months ago
    To summarize a blog I wrote back in August, "Will the Real Estate Market Really Crash Post-Covid?", noting that we still aren't post-covid: *Home prices are increasing, home sales are increasing, even the availability of mortgage credit is increasing all while COVID cases are increasing and unemployment remains high. *The buyer pool is shrinking due to the increase in unemployment and because credit availability is at its lowest level in 6 years, even though it is increasing. *When the home prices begin to drop, the number of negative equity mortgages will naturally rise which could cause more homeowners to default (some by choice like in 2008) and banks will have to allocate more of their liquidity to expected losses (meaning less liquidity to loan out). *At some point, a portion of those expected losses (non-performing loans/NPLs) that the banks have made provisions for will default and the banks will realize those losses through foreclosures, which will cause home prices to decrease further. *Inflated Home Prices+High Unemployment+Low Credit Availability+Increased NPLs = ??? I do think we will see an uptick in defaults, foreclosures, and short sales. The question is how much; my opinion, I think we'll see a lot but only time will tell.
    Ashley Draper
    Replied 2 months ago
    Yes, love the perspective. We're definitely still in the throes of this pandemic and there's no telling what might happen. I definitely see the logic behind "Inflated Home Prices+High Unemployment+Low Credit Availability+Increased NPLs" and it certainly looks like the writing is on the wall. I applaud you all for sticking it out in such uncertain and crazy times.
    Bryan Doan
    Replied 2 months ago
    It depends on the areas too! Not the same everywhere though. Most unemployment comes from the population who don’t own mortgages. Take Seattle areas for example, Amazon, Microsoft, FB, Google, and other techies are stronger than ever here... unemployment comes Mall/restaurants probably cause issues for commercial & Multifamily RE instead... Thanks
    Eric Huang Rental Property Investor from Seattle, WA
    Replied 2 months ago
    Totally agree. I live on East Side. The housing price is rising consistently over the last half year in the Seattle area. With WFH, more people in tech industry are moving out of the Seattle and seeking SFH in greater Seattle area. East Side is on the top of the list.
    Sherief Elbassuoni Real Estate Agent from Seattle, WA
    Replied 2 months ago
    Agree Bryan and Eric. The Seattle market is pretty strong even after Covid. Tech companies are way stronger than before, and they are expanding especially at East Seattle. The work from home culture is also allowing people to buy in the out-skirt of Seattle (Tacoma, Everett, ....) without being very concerned about the commute to work.
    Brenna Elske from Lake Stevens, Washington
    Replied 2 months ago
    I third on the Seattle market. This is just anecdotal but I’m in Snohomish County (about an hour north of Seattle) and neighbor’s 1990’s contractor grade home with zero upgrades (even the carpet was original to the home) just sold for $30K over asking. It is on a nice lot with a decent view but I thought the listing price was optimistic. I certainly didn’t expect a bidding war in November. I haven’t seen prices increase so rapidly in my area since 2007.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    Interesting, Tanya. I looked at the ATTOM data and the CoreLogic Summer reports, and it didn't seem like they were predicting a flood. But, who knows what can happen in 2021, since like you said, we arent even post-covid yet! Thanks for your thoughtful insight!
    Tanya Johnson Real Estate Consultant from Saint Louis, MO
    Replied 2 months ago
    Thanks Anson. You're correct that a flood has not been predicted; however, it seems like a consensus is there will be a market correction and there will be an uptick in foreclosures. How much is the question and certainly some areas will be impacted harder than others. Somewhere I read this being described as the Fed Bubble and I think that's an accurate title. The government is holding up the economy with QE and stimulus, so at what point is that no longer sustainable? What lies ahead will be interesting for sure. Thanks for your thought provoking article!
    John Murray from Portland, Oregon
    Replied 2 months ago
    With the Dodd-Frank we will never see another Subprime Era in Real Estate grab like we saw about 10 years ago. So if you did not capitalize on the REOs, Shorts and other discounted buys you missed the train. The train left for the last time in 2015-2016 in my market. Wow the investment banks shorted their own securitized loans, not ever going to happen in our lifetimes. Go figure how that's not legal.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    I agree, the failsafes put in place mean we shouldnt see a free fall like we did last time for sure. Some countries let their banks fail and tried bankers....
    John Murray from Portland, Oregon
    Replied 2 months ago
    I made out well on the Subprime Crash. The result was a taxpayer bailout, countries like Iceland going broke and a world recession. The CEOs of Freddie and Fannie get fired and not held accountable for doctoring the books. The SEC turned a blind eye for major financial crimes, and the Feds go after a few minor small banks for infractions that bankrupted those institutions without a major conviction. The CEO of Deutsche Bank said it the best "People Forget". I think they are in trouble again though.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    From what I remember, Iceland let their banks fail, then put the bankers on trial. Interesting how history repeats itself. Thanks for the comment John, I appreciate it!
    Sonny Do from Cortland, OH
    Replied 2 months ago
    There are a few things people are overlooking. As evidenced by the bitcoin meteoric rise (again), inflation will only be tamed for so long. Housing prices will be buoyed by QE infinity - the gov't continues to pump thousands into the hands of EVERYONE. I also think you're seeing a generational shift in wealth - trillions being passed down to the younger generations who are moving into suburbs at a high rate, especially with COVID related urban flight. Until the glut of those seeking houses subsides, I don't see a downturn in real estate prices in 2021.
    Anson Young Flipper/Rehabber from Denver, CO
    Replied 2 months ago
    Agreed, Sonny! Thanks for the insightful comment!
    Thomas B Delsart
    Replied about 2 months ago
    With a high percentage of renters not paying, A lot of landlords are starting to just turn their properties back to the bank. This is not going to be good for landlords. What screwed up nonsense is this law
    Oleg Donets Specialist from Cleveland, OH
    Replied about 2 months ago
    Thank you for mentioning our survey Anson! I appreciate that.