Why Today's Foreclosure Statistics Are Different From 2008

You've probably read stories regarding the rising number of foreclosures in today's property market. That may raise a few questions for you, especially if you're considering purchasing a home. Understanding what they truly imply is crucial if you want to know the truth about what is going on right now.

According to a recent report from ATTOM, a property data provider, foreclosure filings are up 6% compared to the previous quarter and 22% since one year ago. As media headlines call attention to this increase, reporting on just the number could actually generate worry and may even make you think twice about buying a home 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 take a look at the most recent data in context to see how it compares to past 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:

“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.”

Basically, there’s not a sudden flood of foreclosures coming. Instead, some of the increase is due to the delayed activity explained above, while more is due to economic conditions. 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 keep increased levels of foreclosure activity at bay.”

Take a look at the graph below to see just how different the situation is now compared to the housing meltdown. It demonstrates that foreclosure activity has been decreased after the crash by examining properties having a foreclosure file dating back to 2005.

While foreclosures are on the rise, it is evident that current foreclosure activity is nothing like it was during the housing crisis. 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. 

Today, foreclosures are far below the record-high number that was reported when the housing market crashed.

Bottom Line

Putting data into perspective is more crucial than ever right now. While foreclosures are projected to climb in the housing market, they are nothing near the crisis levels observed when the housing bubble burst, and this will not result in a drop in home prices.