What does the increase in foreclosures mean to the real estate market? If you’ve been keeping up with the news lately, you’ve probably come across headlines talking about the increase in foreclosures in today’s housing market. This may have left you with some uncertainty, especially if you’re considering buying a home. It’s important to understand the context of these reports to know the truth about what’s happening today
Foreclosure Filings Are Increasing But….
According to ATTOM, a property data provider, foreclosure filings are up 2% compared to the previous quarter and 8% compared to last year. . While media headlines are drawing attention to this increase in foreclosures, the limited focus on the number of foreclosures can generate fear that prices could crash. The reality is, while increasing, the data shows the market is not headed toward a foreclosure crisis.
Why Is there an Increase in Foreclosures?
During COVID, the number of foreclosures was at record lows. That’s because, in 2020 and 2021, the forbearance program and other relief options for homeowners helped millions of homeowners stay in their homes, allowing them to get back on their feet during a very challenging period. As home values rose during the same period, many homeowners who might have found themselves facing foreclosure under other circumstances were able to leverage their equity and sell their houses rather than face foreclosure. Moving forward, homeowners’ equity will continue to be a factor that can protect people from foreclosure.
As the government’s moratorium came to an end, there was an expected rise in foreclosures. But just because foreclosures are up doesn’t mean the housing market is in trouble. As Clare Trapasso, Executive News Editor at Realtor.com, says:
“Many of these foreclosures would have occurred during the pandemic, but were put off due to federal, state, and local foreclosure moratoriums designed to keep people in their homes . . . Real estate experts have stressed that this isn’t a repeat of the Great Recession. It’s not that scores of homeowners suddenly can’t afford their mortgage payments. Rather, many lenders are now catching up. The foreclosures would have happened during the pandemic if moratoriums hadn’t halted the proceedings.”
Why this Increase in Foreclosures Is Not 2008
In a recent article, Bankrate also explains:
“In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been a slight uptick in foreclosures since then, it’s nothing like it was.”
Basically, there’s not a sudden flood of foreclosures coming. Instead, some of the increase is due to the delayed activity explained above while more is from economic conditions.
While foreclosures are climbing, it’s clear foreclosure activity now is nothing like it was back then. Today, foreclosures are far below the record-high number that was reported when the housing market crashed. In addition, there is not a large backlog of foreclosures waiting to occur.
Bottom Line
Right now, putting the data into context is more important than ever. While the housing market is experiencing an expected increase in foreclosures, it’s nowhere near the crisis levels seen when the housing bubble burst, and that should not lead to a crash in home prices.
