Bankruptcy and Foreclosures Won't Crash Housing Market

If you've been paying attention to the news lately, you've probably noticed headlines concerning an increase in foreclosures and bankruptcies. That might be making you nervous, especially if you're considering buying or selling a home.

But the truth is, even though the numbers are going up, the data shows the housing market isn’t headed for a crisis.

Foreclosure Activity Rising, but Less Than Headlines Suggest

Foreclosures have been extremely rare in recent years. That's because the forbearance program and other relief alternatives were put in place in 2020 and 2021 to assist many homeowners stay in their homes during that difficult time.

When the moratorium expired, foreclosures were projected to increase. However, just because they are higher does not imply that the home market is in jeopardy.

To help you see how much things have changed since the housing crash in 2008, check out the graph below using research from ATTOM, a property data provider. It looks at properties with a foreclosure filing going all the way back to 2005 to show that there have been fewer foreclosures since the crash.

As you can see, foreclosure filings are gradually returning to pre-pandemic levels, although they are still far lower than when the housing market fell in 2008. Today, the enormous amount of equity that American homeowners have in their houses can assist them in selling and avoiding foreclosure.

The Increase in Bankruptcies Isn’t Dramatic Either

As you can see below, the financial trouble many industries and small businesses felt during the pandemic didn’t cause a dramatic increase in bankruptcies. Still, the number of bankruptcies has gone up slightly since last year, nearly returning to 2021 levels. But that isn’t cause for alarm.

The figures for 2021 and 2022 were lower than in previous years. This is due in part to the government's assistance to individuals and companies throughout the outbreak. So, instead, let's look at this year's bar and compare it to the bar on the far left (2019). It demonstrates that the number of bankruptcies today is still nowhere near what it was prior to the epidemic. Both of these criteria explain why the housing market is not in danger of collapsing.

Bottom Line

Understanding the facts is crucial right now. Foreclosures and bankruptcies are on the rise, but these leading signs aren't pointing to a problem that would lead to another crisis.

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