Understanding Foreclosure and What it Means for Prospective Homebuyers

Are you worried about the increasing number of foreclosures in today's housing market? The headlines can be terrifying, but don't let them cloud your judgment. While foreclosures may increase over the next few months, it's essential to understand what that means. Don't let fear hold you back from buying a house.

Foreclosure Uptick: What It Means For The Real Estate Market

A recent survey from ATTOM, a company that provides property data, indicates that foreclosure filings are up 6% from the previous quarter and 22% from a year ago. As this surge is highlighted in media headlines, focusing solely on the figure itself may cause anxiety and cause you to reconsider buying a home out of concern that values may plummet. Despite the data showing an increase, the market is not approaching a foreclosure disaster. 

How Forbearance Assistance Kept Homeowners Afloat

Forbearance programs and other options for homeowners are among the COVID-19 relief initiatives that have helped keep the number of foreclosures at an all-time low. ATTOM data show that in 2021, due to the housing market's efforts to help homeowners with their mortgage payments and save them from losing their houses, foreclosure filings reached their lowest level in over a decade.

Your Home Equity is Robust

During a difficult period, these programs assisted millions of homeowners to remain in their homes and recover their financial stability. Additionally, with home values rising, many homeowners were able to leverage their equity and sell their houses instead of facing foreclosure. Moving forward, equity will continue to be a factor that can help keep people from going into foreclosure. Although there may be an increase in foreclosures over the next few months, the risk of a spike in defaults and foreclosures is mitigated by borrowers' relatively strong equity position due to rapid home price appreciation.

As Clare Trapasso, Executive News Editor at Realtor.com, says:

“There’s no reason to panic, at least not yet. Foreclosure filings began ticking up . . . after the federal foreclosure moratorium ended. The moratorium was enacted in the early days of COVID-19, when millions of Americans lost their jobs, to prevent a tsunami of homeowners losing their properties. So some of these proceedings would have taken place during the pandemic but got delayed due to the moratorium. This is a bit of a catch-up.”

As Rob Barber, CEO of ATTOM, explains:                                       

“This unfortunate trend can be attributed to a variety of factors, such as rising unemployment rates, foreclosure filings making their way through the pipeline after two years of government intervention, and other ongoing economic challenges. However, with many homeowners still having significant home equity, that may help in keeping increased levels of foreclosure activity at bay.”

Homeowners Sitting on a Goldmine of Equity: What It Means for the Housing Market

According to ATTOM data, 68.1% of homeowners have paid off their mortgages or owned their homes outright or with at least 50% equity. In California, 33% of homeowners own their homes free and clear. This indicates that people hold a lot of equity, which is good news for the housing market. Homeowners are less likely to default on their loans when they can access so much equity, preventing a flood of foreclosures. This is fantastic news for potential homebuyers who can invest with assurance in a strong and booming market.

Conclusion

Contextualizing the data is essential in the current circumstances. Even while more foreclosures are expected to occur in the current market, the situation is still far from the crisis levels experienced when the housing bubble burst. You don't need to worry about a decline in housing prices. Considering the market's indications of stability and expansion, potential homebuyers can invest with assurance.