Why Today’s Foreclosure Numbers Won’t Trigger a Crash

As prices continue to climb, it’s understandable to be anxious about the potential effects on the housing market. The worry is that increased expenses and limited budgets might lead to more homeowners struggling with their mortgage payments, which could result in a surge of foreclosures. Lets take a closer look at the current situation.

Recent foreclosure data indicates that there is no significant wave approaching.

How Today’s Market Is Different from 2008

The graph below, based on research from ATTOM, a property data provider, illustrates that the number of homeowners entering the foreclosure process is far from the levels we saw in 2008. During that time, there was a significant surge in foreclosures. In contrast, current numbers are much lower, with a recent drop noted in the latest report. There’s a substantial difference between today’s situation and what occurred during the housing market crash. (see graph below):

If you’re curious about the slight increase in foreclosure filings since 2020 and 2021, here’s the explanation. During those years, a moratorium (indicated in white) was in place to help millions of homeowners avoid foreclosure during tough times. This is why the numbers from that period were exceptionally low. Looking further back, it’s clear that overall foreclosure filings have decreased significantly.

There are fewer foreclosures today despite rising living costs, and here’s the explanation. A key reason is that homeowners now have significantly more equity in their homes compared to 2008. As noted in an article from Bankrate:

“In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes.” 

This equity serves as a safety net, enabling many homeowners to steer clear of foreclosure during financial difficulties. Even if someone is having trouble with monthly payments, they might still sell their home and prevent foreclosure altogether. This contrasts sharply with the situation during the crash, when homeowners often owed more on their mortgages than their homes were worth.

What’s Ahead for the Housing Market

It’s true that the higher cost of living is a challenge for many right now. However, this doesn’t necessarily mean we’re facing a surge in foreclosures. The equity cushion that homeowners have is helping to keep foreclosure filings low, giving them more options to avoid foreclosure altogether.

Bottom Line

Yes, everyday expenses like gas and food have risen, but that doesn’t mean the housing market is on the verge of another foreclosure crisis. Data indicates that we are far from experiencing a wave of foreclosures. Homeowners today are in a much stronger financial position than they were during the 2008 crash, largely due to significant equity.