This chart shows why the housing market may see an end-of-September shock

Lance Lambert
3 min read
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The worst of the 2021 bidding wars look like they're in the rearview mirror as the red hot housing market finally cools down a bit.

Since bottoming out this spring, the number of homes for sale is up 30%. Sure, some of that can be attributed to seasonality, but the bigger reason is buyers are finally balking at insane prices—which have risen 18% over the past 12 months. Another factor: Edgy sellers who don't want to miss out on profits may be rushing to put their homes on the market—and may feel a bit more comfortable moving now than they did when the pandemic was raging unchecked.

But this softening isn't over: There's more inventory looming.

The mortgage forbearance program, which allows some borrowers to pause their payments, is set to begin winding down on Sept. 30. There are still 1.7 million borrowers enrolled in the program. Not all of these struggling borrowers are going to be able to afford those payments. Some of them will simply sell rather than restart paying. That of course, means more inventory.

As Fortune has previously reported, this will shake the housing market. In a nation of more than 80 million homeowners, 1.7 million might not sound like a lot. That is, until you consider there are only 1.3 million homes for sale.

Keep in mind that not every borrower will exit forbearance at the same time. Instead, they'll be phased out over several months. But the largest chunk—estimated at nearly 452,000 borrowers—are expected to drop out of the program at the end of the month (see the chart below). This risk of a sudden influx of sellers in late September and October is why the end of forbearance has the attention of so many industry insiders.

The big question is how many of those struggling borrowers will sell? To find out, Zillow ran the numbers. The real estate firm estimates 25% of the 1.7 million borrowers still in forbearance are likely to list their home for sale. That would, Zillow researchers predict, add an additional 211,700 homes onto the market in the coming two months alone.

"Hundreds of thousands of U.S. homeowners are expected to exit forbearance in coming months. A significant share of these homeowners will likely end up listing their home for sale, contributing meaningfully to overall inventory levels and allowing homeowners in forbearance to benefit from home price appreciation and use the equity gained for a future down payment," write the Zillow researchers.

Even if 25% of forbearance borrowers go through with listing their home, it's unlikely to cause a housing market crash. Why? Demand for homes simply outmatches supply. U.S. inventory is still 38% below pre-pandemic levels. And demographics coupled with low mortgage rates continue to push the market forward.

If the end of forbearance does lead to a spike in inventory, it would make the market a bit friendlier for buyers—a welcome change for anyone who has spent the past year house hunting in a sellers market.

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This story was originally featured on Fortune.com

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