Recent headlines discussing the rise in foreclosures in the housing market are probably familiar to you if you’ve been following the news. You might still be unsure about this, especially if you’re thinking about purchasing a home. To get the real picture of what’s going on right now, it’s crucial to comprehend the context of these reports.
Foreclosure filings are up 2% from the prior quarter and 8% from a year ago, according to a recent report from ATTOM, a provider of property data. Although this increase has been the subject of media attention, focusing only on the number itself may cause consumers to worry that prices will fall. In spite of the data showing an increase, the market is not heading toward a foreclosure crisis.
To compare this to prior years, let’s take a context-rich look at the most recent data.
It Isn’t the Dramatic Increase Headlines Would Have You Believe
The number of foreclosures has dropped to all-time lows in recent years. That’s because the forbearance program and other homeowner relief options helped millions of homeowners stay in their homes in 2020 and 2021, enabling them to rebuild their lives during a very trying time. Additionally, as home values increased concurrently, many homeowners who might otherwise have faced foreclosure were able to use their equity and sell their homes instead of going through with it. Equity will continue to be a factor in the future that can prevent people from going into foreclosure.
An increase in foreclosures was anticipated as the government’s moratorium came to an end. However, a rise in foreclosure rates alone does not indicate that the housing market is in trouble. According to Clare Trapasso, Executive News Editor at Realtor.com:
“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.”
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.
To further paint the picture of just how different the situation is now compared to the housing crash, take a look at the graph below. It uses data on foreclosure filings for the first half of each year since 2008 to show foreclosure activity has been consistently lower since the crash.
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 to all the factors mentioned above, that’s also largely because buyers today are more qualified and less likely to default on their loans.
