Why a Foreclosure Wave Isn’t on the Horizon

<article class="post-1131214 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-1131214"><span class="entry-date">July 23, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">Why a Foreclosure Wave Isn’t on the Horizon</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Why+a+Foreclosure+Wave+Isn%E2%80%99t+on+the+Horizon&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fwhy-a-foreclosure-wave-isnt-on-the-horizon%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="Why a Foreclosure Wave Isn’t on the Horizon Simplifying The Market" decoding="async" loading="lazy" src="https://media.agentaprd.com/sites/222/20240723-Why-a-Foreclosure-Wave-Isn-t-on-the-Horizon-original.webp" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width=""/>
<p>Even though data shows inflation is cooling, a lot of people are still feeling the pinch on their wallets. And those high costs on everything from gas to groceries are fueling unnecessary concerns that more people are going to have trouble making their mortgage payments. But, does that mean there’s a big wave of <a href="https://www.simplifyingthemarket.com/2024/04/24/foreclosure-numbers-are-nothing-like-the-2008-crash/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">foreclosures</a> coming? </p>
<p>Here’s a look at why the data and the experts say that’s not going to happen.</p>
<h4><strong>There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgages</strong></h4>
<p>One of the main reasons there were so many foreclosures during the last <a href="https://www.simplifyingthemarket.com/2024/07/08/not-a-crash-3-graphs-that-show-how-todays-inventory-differs-from-2008/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">housing crash</a> was because relaxed lending standards made it easy for people to take out mortgages, even when they couldn’t show they’d be able to pay them back. At that time, lenders weren’t being as strict when looking at applicant credit scores, income levels, employment status, and debt-to-income ratio.</p>
<p>But since then, lending standards have gotten a whole lot tighter. Lenders became much more diligent when assessing applicants for home loans. And that means we’re seeing more qualified buyers who have less of a risk of defaulting on their loans. </p>
<p>That’s why data from <a href="https://www.freddiemac.com/investors/financials/pdf/0524mvs.pdf" rel="noopener noreferrer" target="_blank"><em>Freddie Mac</em></a> and <a href="https://www.fanniemae.com/media/51916/display" rel="noopener noreferrer" target="_blank"><em>Fannie Mae</em></a> shows the number of homeowners who are seriously behind on their mortgage payments (known in the industry as delinquencies) has been declining for quite some time. Take a look at the graph below:  <a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240718/20240723-Serious-Delinquencies-on-a-Decline-original.png" rel="noopener noreferrer" target="_blank"><img alt="No Caption Received" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240718/20240723-Serious-Delinquencies-on-a-Decline-original.png"/></a></p>
<p>What this means is that, not only are borrowers more qualified, but they’re also finding ways to navigate through their challenges, exploring their repayment options, or maybe even using the record amount of equity they have to sell and avoid foreclosure entirely.</p>
<h4><strong>The Answer Is: There’s No Sign of a Wave Coming</strong></h4>
<p>Before there can be a significant rise in foreclosures, the number of people who can’t make their mortgage payments would need to rise significantly. But, since so many buyers are making their payments today and homeowners have so much <a href="https://www.simplifyingthemarket.com/2024/07/03/homeowners-gained-28k-in-equity-over-the-past-year/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">equity</a> built up, a wave of foreclosures isn’t likely.</p>
<p>Take it from Bill McBride of <em>Calculated Risk – </em>an expert on the housing market who, after closely following the data and market leading up to the crash, was able to see the foreclosure crisis coming in 2008. McBride <a href="https://calculatedrisk.substack.com/p/q1-update-delinquencies-foreclosures" rel="noopener noreferrer" target="_blank">says:</a> </p>
<blockquote><p><em>“We will NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble) for two key reasons: 1) mortgage lending has been solid, and 2) most homeowners have substantial equity in their homes.”</em></p></blockquote>
<h3>Bottom Line</h3>
<p>If you’re worried about a potential foreclosure crisis, know there’s nothing in the data to suggest that’ll happen. Buyers are more qualified now, and that’s one reason why they’re not falling seriously behind on their mortgage payments. </p>
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