Why You Shouldn't Be Worried About Today's Foreclosure News

If you've heard recent news concerning a surge in foreclosures in the housing market, you're not alone. There's no doubt that news stories right now can be hard to understand. They might even make you think twice about buying a home out of fear that prices will drop. In reality, the data shows that the market is not headed toward a foreclosure crisis. If you want to know the truth about what's going on right now, you need to know what that means. Here’s a deeper look.

According to the Year-End 2022 U.S. Foreclosure Market Report from ATTOM, foreclosure filings are up 115% from 2021, but down 34% from 2019. As media headlines grab onto this 115% increase, it’s more important than ever to put that percentage into context.

Even though the number of foreclosure filings more than doubled last year, it's important to remember why that happened and how it compares to normal market years before the crisis. Thanks to the forbearance program and other relief options for homeowners, foreclosure filings were down to record-low levels in 2020 and 2021, so any increase last year is — no surprise — a jump up. Rick Sharga, Executive VP of Market Intelligence at ATTOM, notes:

“Eighteen months after the end of the government’s foreclosure moratorium, and with less than five percent of the 8.4 million borrowers who entered the CARES Act forbearance program remaining, foreclosure activity remains significantly lower than it was prior to the COVID-19 pandemic. It seems clear that government and mortgage industry efforts during the pandemic, coupled with a strong economy, have helped prevent millions of unnecessary foreclosures.”

Millions of homeowners were able to stay in their homes because of these options, which helped them get back on their feet during a very hard time. At the same time, home values were going up, so many homeowners who might have lost their homes to foreclosure in other situations were able to use their equity to sell their homes instead. This trend continues to this day.

And remember, as the graph below shows, foreclosures today are far below the record-high 2.9 million that were reported in 2010 when the housing market crashed.

So, while foreclosures are rising, keeping perspective in mind is key. As Bill McBride, Founder and Author of Calculated Risk, noted just last week:

“The bottom line is there will be an increase in foreclosures over the next year (from record low levels), but there will not be a huge wave of distressed sales as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.”

Bottom Line

Right now, putting the data into context is more important than ever. While the housing market is experiencing an expected rise in foreclosures, it’s nowhere near the crisis levels seen when the housing bubble burst, and that won’t lead to a crash in home prices.