How Today's Foreclosure Rates Differ from 2008
If you've been keeping up with the news, you've likely come across headlines discussing the increasing number of foreclosures in the current housing market. This may have left you with some concerns, especially if you're planning to buy a home. However, it's important to understand the situation to get an accurate picture of what's going on.
According to a recent report from ATTOM, a property data provider, foreclosure filings have increased by 6% compared to the previous quarter and 22% since last year. While this news is making headlines, just focusing on the numbers can cause undue worry and deter you from buying a home. The truth is, although there has been an increase in foreclosures, it's not indicative of a foreclosure crisis in the housing market.
To gain a clearer understanding of the situation, it's essential to contextualize the data by comparing it to previous years.
Contrary to what the headlines may suggest, the increase in foreclosures isn't as dramatic as it seems. Over the past few years, foreclosure rates have been at record lows due to the forbearance program and other relief options that helped millions of homeowners stay in their homes during challenging times. Additionally, rising home values provided a means for homeowners to sell their homes and avoid foreclosure. Going forward, equity will continue to play a crucial role in preventing foreclosures.
As the government's moratorium on foreclosures ended, an expected increase in foreclosures occurred. However, this doesn't necessarily mean that the housing market is in trouble. As Clare Trapasso, Executive News Editor at Realtor.com, notes:
“There’s no reason to panic, at least not yet. Foreclosure filings began ticking up . . . after the federal foreclosure moratorium ended. The moratorium was enacted in the early days of COVID-19, when millions of Americans lost their jobs, to prevent a tsunami of homeowners losing their properties. So some of these proceedings would have taken place during the pandemic but got delayed due to the moratorium. This is a bit of a catch-up.”
In essence, it's not as if there's an abrupt surge of foreclosures imminent. Rather, a portion of the uptick is attributable to the postponed actions mentioned earlier, while the rest is a result of prevailing economic circumstances. As Rob Barber, CEO of ATTOM, explains:
“This unfortunate trend can be attributed to a variety of factors, such as rising unemployment rates, foreclosure filings making their way through the pipeline after two years of government intervention, and other ongoing economic challenges. However, with many homeowners still having significant home equity, that may help in keeping increased levels of foreclosure activity at bay.”
To provide a clearer contrast between the current scenario and the housing market crash, consider the graph displayed below. It depicts a lower incidence of foreclosure proceedings since the market crash by examining properties with foreclosure filings dating back to 2005.
Although foreclosures are on the rise, it's evident that current foreclosure activity differs significantly from what was experienced during the housing crisis. Apart from the aforementioned factors, a significant contributor to this difference is that present-day buyers are more creditworthy and less prone to loan defaults.
Compared to the peak recorded during the housing market crash, today's foreclosure rates are much lower.
In conclusion, it's crucial to contextualize the data now more than ever. Although there has been an expected increase in foreclosures, it's nowhere near the levels seen during the housing bubble's burst, and it's not expected to result in a decline in home prices.