Foreclosures | The HousingCoach

Why Today’s Housing Market Is Not About To Crash

by The HousingCoach℠ - Matt McGrath | May 9, 2023

There’s been some concern lately that the housing market is headed for a crash. And given some of the affordability challenges in the housing market, along with a lot of recession talk in the media, it’s easy enough to understand why that worry has come up.

But the data clearly shows today’s market is very different than it was before the housing crash in 2008. Rest assured, this isn’t a repeat of what happened back then. Here’s why.

It’s Harder To Get a Loan Now

It was much easier to get a home loan during the lead-up to the 2008 housing crisis than it is today. Back then, banks had different lending standards, making it easy for just about anyone to qualify for a home loan or refinance an existing one. As a result, lending institutions took on much greater risk in both the person and the mortgage products offered. That led to mass defaults, foreclosures, and falling prices.

Things are different today as purchasers face increasingly higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to show this difference. The lower the number, the harder it is to get a mortgage. The higher the number, the easier it is.

Unemployment Recovered Faster This Time

While the pandemic caused unemployment to spike over the last couple of years, the jobless rate has already recovered back to pre-pandemic levels (see the blue line in the graph below). Things were different during the Great Recession as a large number of people stayed unemployed for a much longer period of time (see the red in the graph below):

Here’s how the quick job recovery this time helps the housing market. Because so many people are employed today, there’s less risk of homeowners facing hardship and defaulting on their loans. This helps put today’s housing market on stronger footing and reduces the risk of more foreclosures coming onto the market.

There Are Far Fewer Homes for Sale Today

There were also too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Today, there’s a shortage of inventory available overall, primarily due to years of underbuilding homes.

The graph below uses data from the National Association of Realtors (NAR) and the Federal Reserve to show how the months’ supply of homes available now compares to the crash. Today, unsold inventory sits at just a 2.6-months’ supply. There just isn’t enough inventory on the market for home prices to come crashing down like they did in 2008.

Equity Levels Are Near Record Highs

That low inventory of homes for sale helped keep upward pressure on home prices over the course of the pandemic. As a result, homeowners today have near-record amounts of equity (see graph below):

And, that equity puts them in a much stronger position compared to the Great Recession. Molly Boesel, Principal Economist at CoreLogic, explains:

“Most homeowners are well positioned to weather a shallow recession. More than a decade of home price increases has given homeowners record amounts of equity, which protects them from foreclosure should they fall behind on their mortgage payments.”

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The graphs above should ease any fears you may have that today’s housing market is headed for a crash. The most current data clearly shows that today’s market is nothing like it was last time.

Why Today’s Foreclosure Numbers Are Nothing Like 2008

by The HousingCoach℠ - Matt McGrath | Apr 27, 2023

You’ve likely seen headlines about the number of foreclosures climbing in today’s housing market. That may leave you with a few questions, especially if you’re thinking about buying a house. Understanding what they really mean is mission-critical if you want to know the truth about what’s happening today.

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, while increasing, the data shows a foreclosure crisis is not where the market is headed.

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

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

In recent years, the number of foreclosures has been down to record lows. That’s because, in 2020 and 2021, the forbearance program and other relief options for homeowners helped millions of homeowners stay in their homes, allowing them to get back on their feet during a very challenging period. And with home values rising at the same time, many homeowners who may have found themselves facing foreclosure under other circumstances were able to leverage their equity and sell their houses rather than face foreclosure. Moving forward, equity will continue to be a factor that can help keep people from going into foreclosure.

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 from 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 in keeping increased levels of foreclosure activity at bay.”

To further paint the picture of just how different the situation is now compared to the housing crash, take a look at the graph below. It shows foreclosure activity has been lower since the crash by looking at properties with a foreclosure filing going all the way back to 2005.

While foreclosures are climbing, it’s clear foreclosure activity now is nothing like it was during the housing crisis. In addition to all of the factors mentioned above, that’s also largely because buyers today 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.

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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.

Here’s Why the Housing Market Isn’t Going To Crash [INFOGRAPHIC]

by The HousingCoach℠ - Matt McGrath | Mar 17, 2023

Why Today’s Housing Market Isn’t Headed for a Crash

by The HousingCoach℠ - Matt McGrath | Feb 9, 2023

67% of Americans say a housing market crash is imminent in the next three years. With all the talk in the media lately about shifts in the housing market, it makes sense why so many people feel this way. But there’s good news. Current data shows today’s market is nothing like it was before the housing crash in 2008. (more…)

Why You Shouldn’t Fear Today’s Foreclosure Headlines

by The HousingCoach℠ - Matt McGrath | Jan 25, 2023

If you’ve seen recent headlines about foreclosures surging in the housing market, you’re certainly not alone. There’s no doubt, the stories in the media can be pretty confusing right now. They may even make you think twice about buying a home for fear that prices could crash. The reality is, the data shows a foreclosure crisis is not where the market is headed, and understanding what that really means is mission critical if you want to know the truth about what’s happening today. Here’s a deeper look. (more…)

Why There Won’t Be a Flood of Foreclosures Coming to the Housing Market

by The HousingCoach℠ - Matt McGrath | Nov 30, 2022

With the rapid shift that’s happened in the housing market this year, some people are raising concerns that we’re destined for a repeat of the crash we saw in 2008. But in truth, there are many key differences between what’s happening today and the bubble in the early 2000s.

One of the reasons this isn’t like the last time is the number of foreclosures in the market is much lower now. Here’s a look at why there won’t be a wave of foreclosures flooding the market.

Not as Many Homeowners Are in Trouble This Time

After the last housing crash, over nine million households lost their homes due to a foreclosure, short sale, or because they gave it back to the bank. This was, in large part, because of more relaxed lending standards where people could take out mortgages they ultimately couldn’t afford. Those lending practices led to a wave of distressed properties which made their way into the market and caused home values to plummet.

But today, revised lending standards have led to more qualified buyers. As a result, there are fewer homeowners who are behind on their mortgages. As Marina Walsh, Vice President of Industry Analysis at the Mortgage Bankers Association (MBA), says:

“For the second quarter in a row, the mortgage delinquency rate fell to its lowest level since MBA’s survey began in 1979 – declining to 3.45%. Foreclosure starts and loans in the process of foreclosure also dropped in the third quarter to levels further below their historical averages.”

There Have Been Fewer Foreclosures over the Last Two Years

While you may have seen recent stories about the number of foreclosures rising today, context is important. During the pandemic, many homeowners were able to pause their mortgage payments using the forbearance program. The program gave homeowners facing difficulties extra time to get their finances in order and, in many cases, work out a plan with their lender.

With that program, many were concerned it would result in a wave of foreclosures coming to the market. That fear didn’t materialize. Data from the New York Fed shows there are still fewer foreclosures happening today than before the pandemic (see graph below):

That means, while there are more foreclosures now compared to last year (when foreclosures were paused), the number is still well below what the housing market has seen in a more typical year, like 2017-2019.

And most importantly, the number we’re seeing now is still far below the number we saw during the market crash (shown in the red bars in the graph). The big takeaway? Don’t let a headline in the news mislead you. While foreclosures are up year-over-year, historical context is essential to understanding the full picture.

Most Homeowners Have More Than Enough Equity To Sell Their Homes

Many homeowners today have enough equity to sell their homes instead of facing foreclosure. Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home. And if they’ve stayed in their homes even longer, they may have even more equity than they realize. As Ksenia Potapov, Economist at First American, says:

“Homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines, but also preventing housing distress from turning into a foreclosure. . . the result will likely be more of a foreclosure ‘trickle’ than a ‘tsunami.’”

A recent report from ATTOM Data explains it by going even deeper into the numbers:

“Only about 214,800 homeowners were facing possible foreclosure in the second quarter of 2022, or just four-tenths of one percent of the 58.2 million outstanding mortgages in the U.S. Of those facing foreclosure, about 195,400, or 91 percent, had at least some equity built up in their homes.”

Bottom Line

If you see headlines about the increasing number of foreclosures today, remember context is important. While it’s true the number of foreclosures is higher now than it was last year, foreclosures are still well below pre-pandemic years. If you have questions, let’s connect.