Don’t Expect a Flood of Foreclosures

The rising cost of just about everything from groceries to gas right now is leading to speculation that more people won’t be able to afford their mortgage payments. And that’s creating anticipation that a lot of foreclosures are on the horizon. With interest rates continually increasing, many buyers are waiting for the foreclosure market to hit, hoping it will raise inventory and provide much-awaited relief from the high prices.

While it’s true that foreclosure filings have gone up a bit compared to last year, experts say a flood of foreclosures isn’t coming. 

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. He predicts that “there will not be a foreclosure crisis this time.”

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

One of the main reasons there were so many foreclosures during the last housing crash was because relaxed lending standards made it easy for people to take out mortgages, even if they couldn’t show that they’d be able to pay them back. At that time, lenders weren’t being very strict when assessing applicant credit scores, income levels, employment status, and debt-to-income ratio.

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.

Molly Boese, Principal Economist at CoreLogic, explains, “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 can be a significant rise in foreclosures, the number of people who can’t make their mortgage payments would need to rise. Since so many homeowners are making their payments today, a wave of foreclosures isn’t likely.

With that being said, if you’ve been waiting to buy until tons of foreclosed homes hit the market with low prices, you could be sitting on the sidelines for a long time. Instead, focus on finding the solution that best fits your unique situation. This could mean expanding your search criteria, or exploring different loan programs that can help you find a home within your comfortable budget.

Let’s chat. It can be a tough market out there for many buyers, but that doesn’t mean you have to give up your dream of homeownership. Schedule a call below to see how we are helping our clients win in any market.