Why It's Not Necessary to Fear the Recent Foreclosure News
You're not the only one if you've read recent news regarding the rise in foreclosures in the housing market. The tales in the media can, without a question, be somewhat perplexing at the moment. They might even cause you to reconsider buying a house out of concern that the market might crash. If you want to know the truth about what is happening right now, it is imperative to comprehend what the data actually means when it indicates that a foreclosure catastrophe is not where the market is headed. Let's take a closer look.
Foreclosure filings are up 115% from 2021 but down 34% from 2019, according to ATTOM's Year-End 2022 U.S. Foreclosure Market Report. It's more crucial than ever to put this 115% surge in context as media headlines seize on it.
Although the number of foreclosure files more than doubled last year, it's important to keep in mind why this occurred and how it relates to the market's more typical, pre-pandemic years. Foreclosure filings were at record-low levels in 2020 and 2021 as a result of the forbearance program and other homeowner relief alternatives, so any increase last year is — unsurprisingly — a surge up. According to ATTOM's Executive VP of Market Intelligence, Rick Sharga:
“Eighteen months after the end of the government’s foreclosure moratorium, and with less than five percent of the 8.4 million borrowers who entered the CARES Act forbearance program remaining, foreclosure activity remains significantly lower than it was prior to the COVID-19 pandemic. It seems clear that government and mortgage industry efforts during the pandemic, coupled with a strong economy, have helped prevent millions of unnecessary foreclosures.”
These choices undoubtedly allowed millions of homeowners to remain in their properties, enabling them to rebuild their lives at a very trying time. Due to rising property values at the same time, many homeowners who might otherwise have faced foreclosure were able to use their equity and sell their homes instead, and this pattern is still present today.
Also keep in mind that today's foreclosure rates are significantly lower than the record-breaking 2.9 million that were recorded in 2010 during the housing market meltdown, as shown in the graph below.
Why You Don't Need to Be Afraid of the Latest Foreclosure News - Simplifying the Market
So, even though the number of foreclosures is increasing, perspective is essential. Founder and author of Calculated Risk Bill McBride recently noted:
“The bottom line is there will be an increase in foreclosures over the next year (from record low levels), but there will not be a huge wave of distressed sales as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.”
To sum up
Contextualizing the data is more crucial than ever right now. Although there is a projected increase in foreclosures in the housing market, they are still well below the crisis levels experienced when the housing bubble burst, thus home prices won't fall.