What you really need to know about the number of foreclosures in the US housing market today

What you really need to know about the number of foreclosures in the US housing market today
House model in chains on wooden table

While you may have seen recent stories about the volume of foreclosures today, context is important.

During the pandemic, many homeowners were able to pause their mortgage payments using the forbearance program.

The goal was to help the owners financially during the uncertainty created by the health care crisis.

When the tolerance program started, many experts were concerned that this would result in a wave of foreclosures coming to the marketas occurred after the real estate crisis in 2008.

Look at why the number of foreclosures we are seeing today is nothing like last time.

1. Fewer homeowners at risk

Today's data shows that the most owners are abandoning their forbearance plan completely up to date with payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again.

The chart below shows these findings from Mortgage Bankers Association (MBA):

Home loans after the end of the grace period created during the pandemic

The same MBA report mentioned above estimates that there are approximately 525,000 homeowners who remain in forbearance today. Fortunately, these people still have the chance to work out a proper payment plan with the service company representing their lender.


2. Most homeowners have enough capital to sell their homes

For those who are leaving the forbearance program without a plan, many will have capital to sell their homes rather than face foreclosure. Due to the rapid rising house prices In the last two years, the average homeowner has earned record amounts of heritage in your home.

Marina Walsh, CMB, MBA's vice president of industry analysis, says:

"Given the nation's limited housing stock and the variety of retention and foreclosure alternatives on the table in various loan types, . . . Borrowers have more options today to stay in their homes or sell without resorting to foreclosure."

3. There were fewer foreclosures in the last two years

One of the rarely reported benefits of the forbearance program was that it gave struggling homeowners two extra years to put your finances in order and work out a plan with your lender. This helped to avoid the foreclosures that would normally have hit the market if the new forbearance program had not been available.

Even when people leave the tolerance program, they still there are fewer foreclosures happening today than before the pandemic. This means that although there are more executions now compared to last year (when foreclosures were paused), the number is still well below what the real estate market saw in a more typical year such as 2017-2019 (see the chart below):

413,480 fewer foreclosures in the last 2 years.

In the chart below we have the number of consumers with new foreclosures, by year.


4. The current market can easily absorb new listings

When the foreclosures in 2008 hit the market, they increased the oversupply of homes that were already for sale. Today it is just the opposite. The latest Existing Homes Sales Report from National Association of Realtors (NAR) reveals:

"The total housing stock at the end of March totaled 950,000 units, up 11.8% from February and down 9.5% from a year ago (1.05 million).

The unsold stock is on a 2.0 month supply at the current sales pace, above 1.7 months in February and below 2.1 months in March 2021."

A balanced market would have approximately a six-month stock. In 2.0 months real estate market is severely undersupplied. Even if a million houses come on the market, there will still not be enough stock to meet the current demand.

See an article with more arguments:  3 Charts that show we are not in a real estate bubble


If you see the headlines about the rising number of foreclosures today, remember that context is important. While it is true that the number of foreclosures is higher now than last year, foreclosures are still well below the pre-pandemic years.

If you have questions, let's connect to talk about the latest market conditions and what they mean for you.

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