With the rapid shift in the housing market during the last half of 2022, you may
have heard rumors that a deluge of foreclosures is imminent, perhaps mimicking
the crash of 2008.
However, the circumstances of 2008 and our current market are vastly different.
Fewer Homeowners are Behind on Their Mortgages
During the housing crash of 2008, over nine million homeowners lost homes due
to foreclosure or short sales. This crash was spurred by poor lending practices and
overextended borrowers. The wave of distressed properties on the market caused a
sharp decline in home prices.
Today’s lending standards have required that buyers are fully qualified, resulting in fewer borrowers falling behind on their mortgages. The mortgage delinquency rate has fallen to its lowest since 1979!
Fewer Foreclosures in the Last Two Years
Remember that context is vital when considering foreclosure statistics. Although
foreclosures are up from last year, they remain near record lows. Pandemic relief
allowed mortgage forbearance to provide homeowners the opportunity to get their
feet back underneath them or to work out payment plans with their lenders. Many
people worried that after the end of mortgage forbearance, a tsunami of
foreclosures would flood the market. It simply hasn’t been the case. In fact, current
data shows that there are fewer foreclosures happening today than pre-pandemic.
Why is this so?
Homeowners Have Equity
Even if homeowners find it necessary to sell their homes due to impending
foreclosure, many homeowners today have plenty of equity to sell their homes and avoid foreclosure.
Ksenia Potapov, Economist at First American, says:
“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.’”
The Summary
Don’t be misled by the headlines and remember that context is vital as you
interpret market statistics. Foreclosure rates remain stable and well below pre-
pandemic numbers. And as always, if you have questions, please don’t hesitate to
reach out. I’d love to help you navigate the current market. (206) 261-2068