Today's Foreclosures Aren't Like 2008's

If you've been following the news lately, you've definitely seen headlines concerning the rise in foreclosures in today's housing market. This may have left you feeling uneasy, especially if you're thinking about buying a house. It's critical to grasp the context of these stories in order to get to the bottom of what's going on right now.

According to a recent report from ATTOM, a property data provider, foreclosure filings are up 2% compared to the previous quarter and 8% since one year ago. While media headlines are drawing attention to this increase, reporting on just the number could actually generate worry for fear that prices could crash. The reality is that, while increasing, the data shows a foreclosure crisis is not where the market is headed.

Let’s look at the latest information in context so we can see how this compares to previous years.

It Isn’t the Dramatic Increase Headlines Would Have You Believe

Foreclosures have been at an all-time low in recent years. This is because, in 2020 and 2021, the forbearance program and other homeowner relief choices enabled millions of homeowners to stay in their homes, helping them to get back on their feet during a difficult time. And, with property values soaring at the same time, many homeowners who might otherwise have faced foreclosure were able to leverage their equity and sell their homes rather than face foreclosure. Equity will continue to be a factor that can help keep people out of foreclosure in the future.

As the government’s moratorium came to an end, there was an expected rise in foreclosures. But just because foreclosures are up doesn’t mean the housing market is in trouble. As Clare Trapasso, Executive News Editor at Realtor.com, says:

“Many of these foreclosures would have occurred during the pandemic, but were put off due to federal, state, and local foreclosure moratoriums designed to keep people in their homes . . . Real estate experts have stressed that this isn’t a repeat of the Great Recession. It’s not that scores of homeowners suddenly can’t afford their mortgage payments. Rather, many lenders are now catching up. The foreclosures would have happened during the pandemic if moratoriums hadn’t halted the proceedings.”

In a recent article, Bankrate also explains:

“In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been a slight uptick in foreclosures since then, it’s nothing like it was.”

Basically, there will not be a rush of foreclosures. Instead, some of the rise is attributable to the above-mentioned delayed activity, while the majority is due to economic conditions.

Take a look at the graph below to see just how different the situation is now compared to the housing meltdown. It analyzes foreclosure filing data for the first half of each year since 2008 to demonstrate that foreclosure activity has been continuously reduced since the recession.

While foreclosures are climbing, it’s clear foreclosure activity now is nothing like it was back then. Today, foreclosures are far below the record-high number that was reported when the housing market crashed.

In addition to the causes described above, this is largely due to the fact that purchasers nowadays are more qualified and less likely to default on their loans.

Bottom Line

Putting data into context is now more crucial than ever. While the housing market is witnessing an expected increase in foreclosures, it is nowhere near the crisis levels witnessed when the housing bubble burst, and this will not result in a drop in home values.