Foreclosure Surge Unlikely, Manage Your Expectations

The current upward trend in the cost of various essentials, spanning from groceries to fuel, has sparked discussions about a potential inability of a larger number of individuals to meet their mortgage obligations. This has consequently generated worries regarding an impending surge in foreclosure cases. While it's accurate that there has been a slight increase in foreclosure filings in comparison to the previous year, specialists affirm that a substantial wave of foreclosures is not imminent.

Listen to the insights of Bill McBride from Calculated Risk, a housing market authority. Having meticulously tracked data and market dynamics prior to the 2008 crash, McBride accurately predicted the foreclosure crisis at that time. Utilizing the same methodical observation and analysis, he offers an alternative perspective on the future of the present market:

"We will not witness a recurrence of a foreclosure crisis on this occasion."

Let's examine the reasons why the prospect of another significant surge is highly improbable.

There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgage Payments

A primary factor behind the substantial number of foreclosures during the previous housing crisis stemmed from the relaxed lending criteria, which facilitated individuals in obtaining mortgages even if they lacked substantial evidence of repayment capability. During that period, lenders displayed leniency in evaluating factors such as applicant credit scores, income adequacy, employment stability, and the ratio of debt to income.

However, at present, lending criteria have become more stringent, resulting in a higher proportion of eligible buyers who possess the financial capacity to meet their mortgage obligations. Moreover, data provided by Freddie Mac and Fannie Mae indicates a decreasing trend in the count of homeowners facing significant delinquency on their mortgage payments (refer to the graph below):

Molly Boese, who holds the position of Principal Economist at CoreLogic, provides insight into the limited number of homeowners encountering difficulties in fulfilling their mortgage obligations:

"The mortgage delinquency rate for May equaled the historically lowest point, with a corresponding decline in serious delinquencies. Additionally, the percentage of mortgages that remained overdue by six months or more, a metric that experienced significant growth in 2021, has retreated to a level not seen since March 2020."

For there to be a notable surge in foreclosures, there would need to be an increase in the count of individuals unable to meet their mortgage obligations. Given the substantial number of current buyers successfully managing their payments, the likelihood of a wave of foreclosures remains low.

Bottom Line

If concerns about a potential deluge of foreclosures are on your mind, understand that the current data does not indicate any such likelihood. In reality, capable buyers are consistently honoring their mortgage commitments at an exceptionally high rate.