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Here’s Why the Housing Market Isn’t Going To Crash [INFOGRAPHIC]
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Archive for the ‘Foreclosures’ Category
Why You Shouldn’t Fear Today’s Foreclosure Headlines
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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.
According to the Year-End 2022 U.S. Foreclosure Market Report from ATTOM, foreclosure filings are up 115% from 2021, but down 34% from 2019. As media headlines grab onto this 115% increase, it’s more important than ever to put that percentage into context.
While the number of foreclosure filings did more than double last year, we need to remember why that happened and how it compares to more normal, pre-pandemic years in the market. Thanks to the forbearance program and other relief options for homeowners, foreclosure filings were down to record-low levels in 2020 and 2021, so any increase last year is — no surprise — a jump up. Rick Sharga, Executive VP of Market Intelligence at ATTOM, notes:
“Eighteen months after the end of the government’s foreclosure moratorium, and with less than five percent of the 8.4 million borrowers who entered the CARES Act forbearance program remaining, foreclosure activity remains significantly lower than it was prior to the COVID-19 pandemic. It seems clear that government and mortgage industry efforts during the pandemic, coupled with a strong economy, have helped prevent millions of unnecessary foreclosures.”
Clearly, these options meant millions of homeowners could stay in their homes, allowing them to get back on their feet during a very challenging period. 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, and that trend continues today.
And remember, as the graph below shows, foreclosures today are far below the record-high 2.9 million that were reported in 2010 when the housing market crashed.
So, while foreclosures are rising, keeping perspective in mind is key. As Bill McBride, Founder and Author of Calculated Risk, noted just last week:
“The bottom line is there will be an increase in foreclosures over the next year (from record low levels), but there will not be a huge wave of distressed sales as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.”
Today’s Housing Market Is Nothing Like 15 Years Ago
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There’s no doubt today’s housing market is very different than the frenzied one from the past couple of years. In the second half of 2022, there was a dramatic shift in real estate, and it caused many people to make comparisons to the 2008 housing crisis. While there may be a few similarities, when looking at key variables now compared to the last housing cycle, there are significant differences. (more…)Why There Won’t Be a Flood of Foreclosures Coming to the Housing Market
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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.
Home Equity: A Source of Strength for Homeowners Today
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Experts agree there’s no chance of a large-scale foreclosure crisis like we saw back in 2008, and that’s good news for the housing market. As Mark Fleming, Chief Economist at First American, says:
“. . . don’t expect a housing bust like the mid-2000s, as lending standards in this housing cycle have been much tighter and homeowners have historically high levels of home equity, so there likely won’t be a surge in foreclosures.”
Data from the Mortgage Bankers Association (MBA) helps tell this story. It shows the overall percentage of homeowners at risk is decreasing significantly with time (see graph below):
But even though the volume of homeowners at risk is very low, there is still a small percentage of homeowners who may be coming face to face with foreclosure as a possibility today. If you’re facing difficulties yourself, it can help to understand your options. It starts with knowing what foreclosure is. Investopedia defines it like this:
“Typically, default is triggered when a borrower misses a specific number of monthly payments . . . Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.”
The good news is there are alternatives available to help you avoid going through the foreclosure process, including:
- Reinstatement
- Loan modification
- Deed-in-lieu of foreclosure
- Short sale
But before you go down any of those paths, it’s worth seeing if you have enough equity in your home to sell it and protect your investment.
You May Be Able To Use Your Equity To Sell Your House
Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.
In today’s real estate market, many homeowners have far more equity in their homes than they realize due to the home price appreciation we’ve seen over the past few years. According to CoreLogic:
“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”
So, what does that mean for you? If you’ve lived in your house for at least a few years or more, chances are your home’s value, and your equity, has risen dramatically. In addition, the mortgage payments you’ve made during that time chipped away at the balance of your loan. If your home’s current value is higher than what you still owe on your loan, you may be able to use that increase to your advantage.
Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, explains how equity can help:
“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
Lean on Experts To Explore Your Options
To find out how much equity you have, work with a local real estate professional. They can give you an estimate of what your house could sell for based on recent sales of similar homes in your area. You may be able to sell your house to avoid foreclosure.
If you find out you have to pursue other options, your agent can help with that too. They’ll be able to connect you with other professionals in the industry, like housing counselors, who can look into your unique situation and offer advice on next steps if selling isn’t your best alternative.
Bottom Line
If you’re a homeowner facing hardship, let’s connect so you have an expert on your side to explore your options and see if you can sell your house to avoid foreclosure.
3 Graphs Showing Why Today’s Housing Market Isn’t Like 2008
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With all the headlines and talk in the media about the shift in the housing market, you might be thinking this is a housing bubble. It’s only natural for those thoughts to creep in that make you think it could be a repeat of what took place in 2008. But the good news is, there’s concrete data to show why this is nothing like the last time.
There’s Still a Shortage of Homes on the Market Today, Not a Surplus
For historical context, there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), and that caused prices to fall dramatically. Supply has increased since the start of this year, but there’s still a shortage of inventory available overall, primarily due to almost 15 years of underbuilding homes.
The graph below uses data from the National Association of Realtors (NAR) to show how the months’ supply of homes available now compares to the crash. Today, unsold inventory sits at just a 3.2-months’ supply at the current sales pace, which is significantly lower than the last time. There just isn’t enough inventory on the market for home prices to come crashing down like they did last time, even though some overheated markets may experience slight declines.
Mortgage Standards Were Much More Relaxed Back Then
During the lead-up to the housing crisis, it was much easier to get a home loan than it is today. Running up to 2006, banks were creating artificial demand by lowering lending standards and making it easy for just about anyone to qualify for a home loan or refinance their current home.
Back then, 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. Today, things are different, and purchasers face much higher standards from mortgage companies.
The graph below uses Mortgage Credit Availability Index (MCAI) data from the Mortgage Bankers Association (MBA) to help tell this story. In that index, the higher the number, the easier it is to get a mortgage. The lower the number, the harder it is. In the latest report, the index fell by 5.4%, indicating standards are tightening.
This graph also shows just how different things are today compared to the spike in credit availability leading up to the crash. Tighter lending standards over the past 14 years have helped prevent a scenario that would lead to a wave of foreclosures like the last time.
The Foreclosure Volume Is Nothing Like It Was During the Crash
Another difference is the number of homeowners that were facing foreclosure after the housing bubble burst. Foreclosure activity has been lower since the crash, largely because buyers today are more qualified and less likely to default on their loans. The graph below uses data from ATTOM Data Solutions to help paint the picture of how different things are this time:
Not to mention, homeowners today have options they just didn’t have in the housing crisis when so many people owed more on their mortgages than their homes were worth. Today, many homeowners are equity rich. That equity comes, in large part, from the way home prices have appreciated over time. According to CoreLogic:
“The total average equity per borrower has now reached almost $300,000, the highest in the data series.”
Rick Sharga, Executive VP of Market Intelligence at ATTOM Data, explains the impact this has:
“Very few of the properties entering the foreclosure process have reverted to the lender at the end of the foreclosure. . . . We believe that this may be an indication that borrowers are leveraging their equity and selling their homes rather than risking the loss of their equity in a foreclosure auction.”
This goes to show homeowners are in a completely different position this time. For those facing challenges today, many have the option to use their equity to sell their house and avoid the foreclosure process.
Bottom Line
If you’re concerned we’re making the same mistakes that led to the housing crash, the graphs above should help alleviate your fears. Concrete data and expert insights clearly show why this is nothing like the last time.
There Won’t Be a Wave of Foreclosures in the Housing Market
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When mortgage forbearance plans were first announced and the pandemic surged through the country in early 2020, many homeowners were allowed to pause their mortgage payments. Some analysts were concerned that once the forbearance program ended, the housing market would experience a wave of foreclosures like what happened after the housing bubble 15 years ago.
Here’s a look at why that isn’t the case.
1. There Are Fewer Homeowners in Trouble This Time
After the last housing crash, over nine million households lost their homes to a foreclosure, short sale, or because they gave it back to the bank. Many believed millions of homeowners would face the same fate again this time.
However, today’s data shows that most homeowners exited their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The latest data from the Mortgage Bankers Association (MBA) studies how people exited the forbearance program from June 2020 to November 2021.
Here are those findings:
38.6% left the program paid in full
- 19.9% made their monthly payments during the forbearance period
- 11.8% made up all past-due payments
- 6.9% paid off the loan in full
44% negotiated work-out repayment plans
- 29.1% received a loan deferral
- 14.1% received a loan modification
- 0.8% arranged a different repayment plan
0.6% sold as a short sale or did a deed-in-lieu
16.8% left the program still in trouble and without a loss mitigation plan in place
2. Those Left in the Program Can Still Negotiate a Repayment Plan
As of last Friday, the total number of mortgages still in forbearance stood at 890,000. Those who remain in forbearance still have the chance to work out a suitable plan with the servicing company that represents their lender. And the servicing companies are under pressure to do just that by both federal and state agencies.
Rick Sharga, Executive Vice President at RealtyTrac, says in a recent tweet:
“The [Consumer Financial Protection Bureau] and state [Attorneys General] look like they’re adopting a ‘zero tolerance’ approach to mortgage servicing enforcement. Likely that this will limit #foreclosure activity for a good part of 2022, while servicers explore all possible loss [mitigation] options.”
For more information, read the warning issued by the Attorney General of New York State.
3. Most Homeowners Have More Than Enough Equity To Sell Their Homes
For those who can’t negotiate a solution and the 16.8% who left the forbearance program without a work-out, many will have enough equity to sell their homes and leave the closing with cash instead of facing foreclosures.
Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home. As Frank Martell, President & CEO of CoreLogic, explains:
“Not only have equity gains helped homeowners more seamlessly transition out of forbearance and avoid a distressed sale, but they’ve also enabled many to continue building their wealth.”
4. There Have Been Far Fewer Foreclosures Over the Last Two Years
One of the seldom-reported benefits of the forbearance program was that it allowed households experiencing financial difficulties prior to the pandemic to enter the program. It gave those homeowners an extra two years to get their finances in order and work out a plan with their lender. That prevented over 400,000 foreclosures that normally would have come to the market had the new forbearance program not been available. Otherwise, the real estate market would have had to absorb those foreclosures. Here’s a graph depicting this data:
5. The Current Market Can Easily Absorb Over a Million New Listings
When foreclosures hit the market in 2008, they added to the oversupply of houses that were already for sale. That resulted in over a nine-month supply of listings, and anything over a six-month supply can cause prices to depreciate.
It’s exactly the opposite today. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:
“Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago (1.28 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.”
A balanced market would have approximately a six-month supply of inventory. At 2.1 months, the market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.
Bottom Line
The end of the forbearance plan will not cause any upheaval in the housing market. Sharga puts it best:
“The fact that foreclosure starts declined despite hundreds of thousands of borrowers exiting the CARES Act mortgage forbearance program over the last few months is very encouraging. It suggests that the ‘forbearance equals foreclosure’ narrative was incorrect. . . .”
Don’t Believe Everything You Read: The Truth Many Headlines Overlook
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There are a lot of questions right now regarding the real estate market as we head into 2022. The forbearance program is coming to an end and mortgage rates are beginning to rise.
With all of this uncertainty, anyone with a megaphone – from the mainstream media to a lone blogger – has realized that bad news sells. Unfortunately, we’ll continue to see a rash of troublesome headlines over the next few months. To make sure you aren’t paralyzed by a headline, turn to reliable resources for a look at what to expect from the housing market next year.
There are already alarmist headlines starting to appear. Here are two recent topics you may have seen in the news.
1. Foreclosures Are Spiking Today
There are a number of headlines circulating that call out the rising foreclosures in today’s real estate market. Those stories focus on an overly narrow view on that topic: the current volume of foreclosures compared to 2020. They emphasize that we’re seeing far more foreclosures this year compared to last.
That seems rather daunting. However, though it’s true foreclosures have been up over the 2020 numbers, it’s important to realize that there were virtually no foreclosures last year because of the forbearance plan. If we compare this September to September of 2019 (the last normal year), foreclosures were down 70% according to ATTOM.
Even Rick Sharga, an Executive Vice President of the firm that issued the report referenced in the above article, says:
“As expected, now that the moratorium has been over for three months, foreclosure activity continues to increase. But it’s increasing at a slower rate, and it appears that most of the activity is primarily on vacant and abandoned properties, or loans in foreclosure prior to the pandemic.”
Homeowners who have been impacted by the pandemic are not generally the ones being burdened right now. That’s because the forbearance program has worked. Ali Haralson, President of Auction.com, explains that the program has done a remarkable job:
“The tsunami of foreclosures many feared in the early days of the pandemic has not materialized thanks in large part to the swift and decisive foreclosure protections put in place by government policymakers and the mortgage servicing industry.”
And the government is still making sure homeowners have every opportunity to stay in their homes. Rohit Chopra, the Director of the Consumer Financial Protection Bureau (CFPB), issued this statement just last week:
“Failures by mortgage servicers and regulators worsened the impact of the economic crisis a decade ago. Regulators have learned their lesson, and we will be scrutinizing servicers to ensure they are doing all they can to help homeowners and follow the law.”
2. Rising Mortgage Rates Will Slow the Housing Market
Another topic that’s generating frequent headlines is the rise in mortgage rates. Some people are expressing concern that rising rates will negatively impact the housing market by causing home sales to dramatically decline. The resulting headlines are raising unneeded alarm bells. To counteract those headlines, we need to take a look at what history tells us. Looking at data over the last 20 years, there’s no evidence that an increase in rates dramatically forces sales to come to a halt. Nor does home price appreciation come to a screeching stop. Let’s look at home sales first:
The last three times rates increased (shown in the graph above in red), sales (depicted in blue in the graph) remained rather consistent. It’s true that sales fell rather dramatically from 2007 through 2010, but mortgage rates were also falling at the time. The next two instances showed no meaningful drop in sales.
Now, let’s take a look at home price appreciation (see graph below):
Again, we see that a rise in rates didn’t cause prices to depreciate. Outside of the years following the crash, prices continued to appreciate, just at a slower rate.
Bottom Line
There’s a lot of misinformation out there. If you want the best advice on what’s happening in the current housing market, let’s connect.
Why a Wave of Foreclosures Is Not on the Way
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With forbearance plans coming to an end, many are concerned the housing market will experience a wave of foreclosures similar to what happened after the housing bubble 15 years ago. Here are a few reasons why that won’t happen.
There are fewer homeowners in trouble this time
After the last housing crash, about 9.3 million households lost their homes to a foreclosure, short sale, or because they simply gave it back to the bank.
As stay-at-home orders were issued early last year, the fear was the pandemic would impact the housing industry in a similar way. Many projected up to 30% of all mortgage holders would enter the forbearance program. In reality, only 8.5% actually did, and that number is now down to 2.2%.
As of last Friday, the total number of mortgages still in forbearance stood at 1,221,000. That’s far fewer than the 9.3 million households that lost their homes just over a decade ago.
Most of the mortgages in forbearance have enough equity to sell their homes
Due to rapidly rising home prices over the last two years, of the 1.22 million homeowners currently in forbearance, 93% have at least 10% equity in their homes. This 10% equity is important because it enables homeowners to sell their homes and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.
The remaining 7% might not have the option to sell, but if the entire 7% of those 1.22 million homes went into foreclosure, that would total about 85,400 mortgages. To give that number context, here are the annual foreclosure numbers for the three years leading up to the pandemic:
- 2017: 314,220
- 2018: 279,040
- 2019: 277,520
The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures that impacted the housing crash 15 years ago. It’s actually less than one-third of any of the three years prior to the pandemic.
The current market can absorb listings coming to the market
When foreclosures hit the market back in 2008, there was an oversupply of houses for sale. It’s exactly the opposite today. In 2008, there was over a nine-month supply of listings on the market. Today, that number is less than a three-month supply. Here’s a graph showing the difference between the two markets.
Bottom Line
The data indicates why Ivy Zelman, founder of the major housing market analytical firm Zelman and Associates, was on point when she stated:
“The likelihood of us having a foreclosure crisis again is about zero percent.”
Understand Your Options To Avoid Foreclosure
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Even though experts agree there’s no chance of a large-scale foreclosure crisis, there are a number of homeowners who may be coming face-to-face with foreclosure as a possibility. And while the overall percentage of homeowners at risk is decreasing with time (see graph below), that’s little comfort to those individuals who are facing challenges today.
If you haven’t taken advantage of the forbearance period, it may be time to research and understand your options. It starts with knowing what foreclosure is. Investopedia defines it like this:
“Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property. Typically, default is triggered when a borrower misses a specific number of monthly payments . . .”
The good news is, there are alternatives available to help you avoid having to go through the foreclosure process, including:
- Reinstatement
- Loan modification
- Deed-in-lieu of foreclosure
- Short sale
But before you go down any of those paths, it’s worth seeing if you have enough equity in your home to sell it and protect your investment.
Understand Your Options: Sell Your House
Equity is the difference between what you owe on the home and its market value based on factors like price appreciation.
In today’s real estate market, many homeowners have far more equity in their homes than they realize. Over the last year, buyer demand has been high, but housing supply has been low. That’s led to a substantial increase in home values. When prices rise, so does the amount of equity you have in your house.
According to CoreLogic, on average, homeowners gained $33,400 in equity over the last 12 months, and the average equity on mortgaged homes is now $216,000 (see map below):
So, what does that mean for you? Over the past year, chances are your home’s value and therefore your equity has risen dramatically. If you’ve been in your home for a while, the mortgage payments you’ve made over time chipped away at the balance of your loan. If your home’s current value is higher than what you still owe on your loan, you may be able to use that increase to your advantage.
Frank Martell, President and CEO of CoreLogic, elaborates on how equity can help:
“Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic. These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market.”
Don’t Go at It Alone – Lean on Experts for Advice
To find out what your house is worth in today’s market, work with a local real estate professional. We’ll be able to give you an estimate of what your house could sell for based on recent sales of similar homes in your area. Since home prices are still appreciating, you may be able to sell your house to avoid foreclosure.
If you find out that you have to pursue other options, your agent can help with that too. We’ll be able to connect you with other professionals in the industry, like housing counselors who can look into your unique situation and offer advice on next steps if selling isn’t the best alternative.
Bottom Line
If you’re a homeowner facing hardship, let’s connect to explore your options and see if you can sell your house to avoid foreclosure.