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Unpacking the Truth Behind the Headlines: Rising Foreclosures and the Current State of the Housing Market

Unpacking the Truth Behind the Headlines: Rising Foreclosures and the Current State of the Housing Market

While it's true that there's been a surge in foreclosure news recently, it's essential to understand the larger context to properly evaluate today's housing market. If you're contemplating buying a house, a deeper understanding of the facts behind the headlines is vital.

Recent data from ATTOM, a provider of property information, shows that foreclosure filings have risen by 6% quarter-on-quarter and 22% year-on-year. These figures, when isolated, may cause some apprehension, possibly making you second guess your decision to buy a home due to the fear of plummeting prices. However, it's crucial to realize that despite the increase, we are not headed towards a foreclosure crisis, contrary to what some may believe.

Let's provide some context to these statistics by comparing them to previous years.

Contrary to sensational headlines, the surge in foreclosure numbers isn't as dramatic as it may seem.

In the past couple of years, foreclosure rates have hit record lows. This decrease was largely due to homeowner relief options and forbearance programs initiated in 2020 and 2021, which helped many homeowners keep their homes during a challenging economic period. Additionally, increasing home values provided homeowners at risk of foreclosure the chance to leverage their equity and sell their homes instead. As we move forward, equity will remain a key factor in preventing foreclosures.

With the end of the government's foreclosure moratorium, a rise in foreclosures was anticipated. However, an increase in foreclosures does not spell doom for the housing market. Clare Trapasso, Executive News Editor at Realtor.com, notes:

"Fears of a foreclosure surge are premature. Foreclosure filings have edged upwards since the cessation of the federal foreclosure moratorium. Instituted at the onset of the pandemic, this moratorium prevented a potential wave of homeowners losing their properties amidst job losses. Some foreclosure proceedings that should have happened during the pandemic were deferred, explaining part of the recent uptick. It's more a case of playing catch-up."

Indeed, the current foreclosure increase is not indicative of an impending deluge. The rise can be attributed to both the deferred foreclosures and challenging economic conditions. Rob Barber, CEO of ATTOM, points out:

"The upswing in foreclosure trends can be ascribed to factors like escalating unemployment rates, foreclosure filings resuming after a two-year government intervention, and other persistent economic challenges. However, substantial home equity held by many homeowners may serve as a buffer, curbing the escalation of foreclosure activities."

To better illustrate the disparity between the current situation and the housing crash, let's look at a long-term perspective. The graph below shows foreclosure activity since 2005, and it's evident that activity now is far below what it was during the housing crisis.

Today, the housing market is fundamentally different, and foreclosure rates, although on the rise, are nowhere near the levels seen during the housing market crash. This is mainly due to more stringent qualification measures for buyers, reducing the likelihood of loan defaults.

Currently, foreclosures are significantly below the peak levels reported during the housing market collapse.

In Conclusion

Data should always be contextualized to grasp its true implications. The housing market is witnessing a predicted increase in foreclosures, but it's nowhere close to the crisis levels observed during the bursting of the housing bubble. And it certainly won't trigger a crash in home prices.