Will we once again see a flood of houses taken for non-payment ?

Will we once again see a flood of houses taken for non-payment ?
foreclosure florida

Why won't there be a flood of foreclosures coming in real estate market

With the rapid change that has happened in the real estate market this year, some people are raising concerns that we are destined to repeat the crash that we saw in 2008.

But in fact, there are many important differences between what is happening today and the bubble of the early 2000s.

One of the reasons why this is not like last time is that the number of foreclosures in the market is much smaller now.

We look at the reasons why there will not be a wave of foreclosures flooding the market.

Few borrowers are having problems this time

After the last real estate collapse, more than nine million of families lost their homes due to a foreclosure, short sale, or because they returned it to the bank.

This was largely because of more relaxed lending standards, where people could take out mortgages that they ultimately could not afford.

These lending practices led to a wave of distressed properties that 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, fewer homeowners are behind on their mortgages. As Marina Walsh, vice president of industry analysis at Mortgage Bankers Association (MBA):

"according to quarter in a row, the mortgage delinquency rate fell to the lowest level since the MBA survey began in 1979 - dropping to 3.45%. Foreclosure starts and loans in the foreclosure process also dropped in the third quarter to levels even further below their historical averages.

There were fewer foreclosures in the last two years

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

During the pandemic, many homeowners were able to pause their mortgage payments using the tolerance program. The program gave struggling homeowners more time to get their finances in order and, in many cases, work out a plan with their lender.

With this program, many were concerned that it would result in a wave of foreclosures coming to the market.

This fear did not materialize. Data from New York Fed show that there are even fewer foreclosures happening today than before the pandemic (see the chart below):

House Arrests for non-payment have increased, but remain very close to the historic low


This means that although there are more foreclosures 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.

And most importantly, the number we are seeing now is still far below the number we saw during the market crash (shown in the red bars of the graph).

The great learning? Don't let a newspaper headline fool you. Although foreclosures increase year after year, historical context is essential to understand the full picture.

Most homeowners have more than enough equity to sell their homes

Many owners today have enough equity to sell their homes instead of facing foreclosure.

Due to the rapid increase in house prices over the past two years, the average homeowner has gained record equity values in their home. And if they stay even longer in their homes, they can have even more equity than they imagine. As Ksenia Potapov, Economist at First American, says:

"Homeowners have very high levels of usable real estate equity today, providing a cushion to withstand possible price declines, but also by preventing the housing problem from turning into a foreclosure . . . the result will probably be more of a foreclosure 'trickle down' than a 'tsunami'."

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

"Only about 214,800 homeowners faced possible foreclosure in the second quarter of 2022, or only four-tenths of one percent of the 58.2 million mortgages outstanding in the US . . or 91 percent, had at least some equity accumulated in their homes.


If you see 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.

Are you in doubt?

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In this text we approached the theme the behavior of the real estate market during recessions because it is interesting for those looking to invest in Florida. If you want to read more content like the one we brought in this article, just stay tuned here on our blog.

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