If you've been keeping up with the news lately, you've probably come across headlines talking about the increase in foreclosures in todays housing market. This may have left you with some uncertainty, especially if you're consideringbuying a home. Its important to understand the context of these reports to know the truth about whats happening today.
According to arecent reportfrom ATTOM, a property data provider, foreclosure filings are up 2% compared to the previous quarter and 8% since one year ago. While media headlines are drawing attention to this increase, reporting on just the number could actually generate worry for fear that prices could crash.The reality is, while increasing, the data shows a foreclosure crisis is not where the market is headed.
Lets look at the latest information with context so we can see how this compares to previous years.
It Isnt the Dramatic Increase Headlines Would Have You Believe
In recent years, the number of foreclosures has been down to record lows. Thats 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. And with home values rising at the same time, many homeowners who may have found themselves facing foreclosure under other circumstances were able to leverage theirequityand sell their houses rather than face foreclosure. Moving forward,equitywill continue to be a factor that can help keep people from going into foreclosure.
As the governments moratorium came to an end, there was an expected rise in foreclosures.But just because foreclosures are up doesnt mean the housing market is in trouble. As Clare Trapasso, Executive News Editor atRealtor.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 isnt a repeat of the Great Recession.Its not that scores of homeowners suddenly cant afford their mortgage payments. Rather, many lenders are now catching up.The foreclosures would have happened during the pandemic if moratoriums hadnt halted the proceedings.
In a recent article,Bankratealsoexplains:
In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. Thats not the case now. Most homeowners have a comfortable equity cushion in their homes.Lenders werent 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, its nothing like it was.
Basically, theres 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, its 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, thats also largely because buyers today are more qualified and less likely to default on their loans.
Bottom Line
Right now, putting the data into context is more important than ever. While the housing market is experiencing an expected rise in foreclosures, its nowhere near the crisis levels seen when the housing bubble burst, and that wont lead to a crash in home prices.
