Why There Won’t Be a Flood of Foreclosures Coming to the Housing Market

Some have expressed concern that the crash of 2008 is destined to be repeated, with the sharp changes in the real estate market this year. But in reality, there are many important differences between what is happening now and his early 2000s bubble.

One of the reasons this is not like last time is that the number of foreclosures in the market has dropped significantly. Let’s see why waves of foreclosures don’t flood the market.

Not as Many Homeowners Are in Trouble This Time

Since the last housing crisis, over 9 million households have lost their homes through foreclosures, short sales, or bank returns. This was largely due to looser lending standards, which ultimately made it possible to take out mortgages they couldn’t afford. These lending practices have caused a wave of distressed properties to enter the market and cause home values ​​to plummet.
But today, revised lending standards have created more qualified buyers. As a result, fewer homeowners are delinquent on their mortgages. Marina Walsh, Vice President of Industry Analysis, Mortgage Bankers Association (MBA) said:

 “For the second quarter in a row, the mortgage delinquency rate fell to its lowest level since MBA’s survey began in 1979 – declining to 3.45%. Foreclosure starts and loans in the process of foreclosure also dropped in the third quarter to levels further below their historical averages.”

There Have Been Fewer Foreclosures over the Last Two Years

Context matters, even if you’ve recently seen stories of an increasing number of foreclosures. During the pandemic, many homeowners were able to suspend their mortgage payments with the help of a moratorium program. In many cases, we gave them additional time to make plans with their lenders.
Many were concerned that the scheme would bring a wave of foreclosures to the market. This fear has not materialized. New York Fed data shows that foreclosures are still lower today than before the pandemic (see chart).

That said, while there are more foreclosures than last year (when foreclosures were stopped), the numbers are well below what the housing market saw in a more typical year like 2017-2019. increase.

And most importantly, the current numbers are much lower than they were during the market crash (shown by the red bars in the chart). big snack? Don’t let the news headlines fool you. With the number of foreclosures increasing each year, historical context is essential to understanding the full picture.

Most Homeowners Have More Than Enough Equity To Sell Their Homes

Many homeowners today have more than enough assets to sell their home rather than face foreclosure. Due to soaring home prices over the past two years, the average homeowner has amassed a record amount of property in their home. And if they stay home much longer, they may have even more equity than they think.First American economist Ksenia Potapov said:

“Homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines, but also preventing housing distress from turning into a foreclosure. . . the result will likely be more of a foreclosure ‘trickle’ than a ‘tsunami.’”

A recent report from ATTOM Data explains it by going even deeper into the numbers:

“Only about 214,800 homeowners were facing possible foreclosure in the second quarter of 2022, or just four-tenths of one percent of the 58.2 million outstanding mortgages in the U.S. Of those facing foreclosure, about 195,400, or 91 percent, had at least some equity built up in their homes.”

Bottom Line

Today, when you see headlines about foreclosure numbers on the rise, remember that context matters. It is true that foreclosures are higher than last year, but foreclosures are still well below pre-pandemic levels. If you have any questions, please contact us.

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