When we read the real estate data this month, three statistics caught our attention. The first: that the number of active foreclosures (i.e. when the foreclosure process has started on a badly delinquent loan, but it has not yet been completed and liquidated) has increased by more than 7,000 in March – the first year-on-year increase in nearly 10 years, according to mortgage technology, data and analytics provider Black Knight. Second, over 78,000 U.S. properties had a foreclosure case in the first quarter of 2022, an increase of 39% from the previous quarter and 132% from a year ago, according to the real estate analysis company ATTOM. And third, serious mortgage delinquencies — those 90 days or more past due — are 70% higher than they were before the pandemic, according to Black Knight.
While those numbers look grim, the pros say the reality isn’t as bad as it looks: Although active foreclosures are up year-over-year, the number of loans in foreclosure active is still well below historical standards. On average, before the pandemic, the country saw around 30,000 to 40,000 foreclosures per month. But the lockdown moratoriums that were put in place under the CARES Act in response to COVID-19 have halted all of that normal activity. And for the most part, the low foreclosure starts are due to the fact that the vast majority of people who had taken advantage of forbearance exited those plans and started to run their mortgages again. And those who remain in forbearance can still enjoy foreclosure protection until they reach the maximum allowable forbearance period.
Regarding foreclosure filings, Rick Sharga, executive vice president of market intelligence at ATTOM, says that while “foreclosure activity increased significantly in the first quarter of 2022…this does not Doesn’t indicate sudden weakness in the housing market or the U.S. economy Mortgage managers are essentially “catching up” processing foreclosures on loans that were already in default or delinquent for more than 120 days prior to the pandemic. Many of these loans are quite old – issued before 2009.” And he adds: “We don’t expect to see a huge wave of foreclosure activity anytime soon…Even with the dramatic increase in foreclosure activity in the first quarter, we are still operating at about 50% of the normal level.”
And finally, on serious mortgage delinquencies, although they’ve been on the rise since the pandemic, in March they fell 12% for the biggest one-month improvement in 20 years, and there’s actually more than 1.2 million less serious chargebacks than last March, Dark Knight reports. In addition, outstanding payments are down overall. Black Knight reports that 30-day late payments – borrowers who only had one payment past due – fell 20% from February. The reason for this drop? A combination of rising employment, student loan deferrals, strong post-forbearance performance and millions of refinances have all contributed to downward pressure on delinquency rates.
Why are foreclosures and delinquencies important to the housing market?
We monitor foreclosures and delinquencies as they are often a sign of distress, which can indicate weakness in the real estate market. Given the decrease in delinquencies from a few months ago, experts suggest that even a slight increase since the start of the year is not cause for concern. “These delinquency rates are so low that they don’t have much of an effect on the overall housing boom,” said Bankrate analyst Jeff Ostrowski. Although the housing market needs any new inventory, Ostrowski says he doubts the volume of foreclosures will be enough to really make a dent in the inventory squeeze. “Foreclosures are at a very low level and the court process can take months, so I don’t expect any real fallout from the spike in foreclosures,” Ostrowski says.
What does all this mean for home buyers and sellers?
The pros say you shouldn’t expect a change in the housing market as a result of these increases in foreclosures. “With demand for homes so much outstripping supply, no one will get a foreclosure for a theft. Competing buyers drive up the prices of all homes, including foreclosures,” says real estate and mortgage expert Holden Lewis at Nerdwallet.
It is, however, possible that you will come across foreclosed properties when looking for a home – and if you are considering buying one, you will probably want to understand the different types of foreclosures offered for sale. “Many real estate investors are looking for a good foreclosure deal, but it’s still a seller’s market,” says Lawrence Yun, chief economist at the National Association of Realtors.
Depending on the stage of the delinquency process, you may find pre-foreclosures where a lender notifies the homeowner that they are in default; short sales where a homeowner attempts to sell the home for less than mortgage value due to financial hardship; sheriff’s auction where defaulted properties are sold in courthouses, bank foreclosures known as real estate (REO) and government foreclosures where properties are purchased with loans from the Federal Housing Finance Agency or of the Veterans Administration.
Foreclosed properties can be found on the Multiple Listing Service (MLS), so you don’t need to go looking for them undercover – they’re available for everyone to see. “Properties subject to foreclosures are also listed in newspapers, bank offices and websites. For buyers considering a foreclosed property, auctions are another way to find available homes,” says Ratiu.
That said, serious delinquency can be devastating to a homeowner, as it means damage to their credit rating and potentially default and foreclosure, says Ostrowski. The silver lining is that because prices are holding up, a struggling homeowner should be able to sell their home before they lose it, but then the same homeowner must stay afloat in an expensive rental market.