Expect No Flood of Foreclosures

The rising cost of almost everything right now, from food to gas, is raising concerns that more people will be unable to afford their mortgage payments. And this is causing anxiety because a large number of foreclosures are on the horizon. While foreclosure filings have increased somewhat compared to last year, analysts say a deluge of foreclosures is unlikely.

Take it from Bill McBride of Calculated Risk. McBride is an expert on the housing market, and after closely following the data and market environment leading up to the crash, he was able to see the foreclosures coming in 2008. With the same careful eye and analysis, he has a different take on what’s ahead in the current market:

“There will not be a foreclosure crisis this time.”

Let’s look at why another flood is so unlikely.

There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgage Payments

One of the key reasons there were so many foreclosures during the previous housing meltdown was because looser lending criteria made it easy for people to get mortgages even if they couldn't prove they'd be able to pay them back. Lenders were not extremely stringent at the time when evaluating applicant credit scores, income levels, work status, and debt-to-income ratios.

But now, lending standards have tightened, leading to more qualified buyers who can afford to make their mortgage payments. And data from Freddie Mac and Fannie Mae shows the number of homeowners who are seriously behind on their mortgage payments is declining (see graph below):

Molly Boese, Principal Economist at CoreLogic, explains just how few homeowners are struggling to make their mortgage payments:

“May’s overall mortgage delinquency rate matched the all-time low, and serious delinquencies followed suit. Furthermore, the rate of mortgages that were six months or more past due, a measure that ballooned in 2021, has receded to a level last observed in March 2020.”

Before there is a large increase in foreclosures, the number of people who are unable to make their mortgage payments must increase. Because so many buyers are currently making their payments, a wave of foreclosures isn’t likely.

Bottom Line

If you're concerned about a future torrent of foreclosures, realize that there's no evidence to suggest it would happen today. In reality, qualified purchasers are incurring extremely expensive mortgage payments.