The American Dream, once synonymous with homeownership and financial security, has been marred by the specter of foreclosure since the onset of the COVID-19 pandemic. As the pandemic unfolded, the housing market experienced unprecedented challenges, and relief measures were swiftly implemented to prevent a devastating wave of foreclosures.
However, as the nation cautiously emerges from the crisis, the landscape of foreclosures is showing signs of change. With several real estate firm reporting a worrisome increase in foreclosure activity across the United States along with the Fed’s most recent move raising the interest rate again, most people cannot help but fear for another housing market crash.
Note: This is a longer than usual article because we are putting serious thoughts and research into this topic. Any question can be directed to info@chadvorealestate.com. But if you want an interesting read, please go ahead and keep reading!
The Current Foreclosure Trend
ATTOM’s midyear foreclosure activity report, a comprehensive analysis of housing trends and foreclosures, revealed that the incidence of foreclosures has been steadily surging over the past few quarters. This unsettling development aligns with the cessation of COVID-related policies and assistance programs designed to aid homeowners during their financial struggles. As of the first half of 2023, approximately 0.13% of all housing units in the country faced foreclosure, representing a 13% surge from the same period in 2022 and a staggering 185% escalation from two years ago.
Rob Barber, the CEO of ATTOM, noted that the trajectory of foreclosures has been on a steady incline, mirroring the patterns observed in the first half of 2022. Despite remaining below historical norms, foreclosure activity is progressively approaching levels seen before the pandemic wreaked havoc on the global economy. The root cause of this concerning upswing lies in the termination of housing relief measures that were crucial in supporting homeowners during the unprecedented crisis of 2020.
Markets With Highest Foreclosures in First Half of 2023
The landscape of foreclosures varies significantly across states, with some witnessing a more substantial increase in foreclosure activity compared to others. Maryland, for instance, experienced an alarming 100% uptick in foreclosures during the first half of 2023, closely followed by Oregon, Alaska, West Virginia, and Arkansas, with increases of 99%, 95%, 83%, and 72%, respectively. On the other hand, the highest foreclosure rates were observed in Illinois, where 0.25% of all housing units had a foreclosure filing, as well as in New Jersey, Maryland, Delaware, and Ohio, all of which had disproportionately high foreclosure rates.
It is noteworthy, however, that while foreclosure activity has risen in some metropolitan areas, the numbers are still well below pre-2008 recession averages for the majority of major markets. For instance, the second quarter of 2023 witnessed 97,608 properties filing for foreclosure, significantly lower than the pre-Great Recession quarterly averages of 278,912. While this provides some solace, Rob Barber cautions that the surge in foreclosure starts, up 15% from the first half of 2021 and 36% from the first half of 2020, could indicate a potential rise in foreclosure activity in the coming years.
Here goes the chart!
Even though there are numerous positive things that we’re all big fans of this effect, unfortunately there are also some consequences coming along. Either it’s intentional or unintentional, it’s really up to us on how we choose to see things. With that being said, here’s a few downfalls of having a Trader Joe’s in your area
| Rank | State | Total Properties with Filings | %Housing Units | 1/Every X HU | % of Increase from Jan-June 22 | %Increase from Jan-June 21 |
| 20 | New Mexico | 1,113 | 0.12 | 842 | 44.92 | 114.45 |
| 19 | Texas | 13,869 | 0.12 | 824 | 20.32 | 245.69 |
| 18 | North Carolina | 5,725 | 0.12 | 816 | 16.43 | 177.37 |
| 17 | Pennsylvania | 7,076 | 0.12 | 810 | 27.93 | 199.32 |
| 16 | California | 17,914 | 0.13 | 800 | 9.63 | 136.49 |
| 15 | Oklahoma | 2,273 | 0.13 | 766 | 7.22 | 179.58 |
| 14 | Iowa | 1,860 | 0.13 | 757 | 18.4 | 153.41 |
| 13 | Georgia | 6,308 | 0.14 | 694 | 10.07 | 173.07 |
| 12 | New York | 12,193 | 0.14 | 693 | 58.91 | 420.4 |
| 11 | Michigan | 7,088 | 0.16 | 644 | 19.87 | 615.24 |
| 10 | Connecticut | 2,437 | 0.16 | 627 | 23.14 | 191.51 |
| 9 | Indiana | 5,254 | 0.18 | 554 | 8.96 | 142.12 |
| 8 | Nevada | 2,402 | 0.19 | 529 | 6.33 | 161.94 |
| 7 | Florida | 18,530 | 0.19 | 527 | 5.14 | 136.02 |
| 6 | South Carolina | 4,511 | 0.19 | 515 | -1.25 | 173.73 |
| 5 | Ohio | 10,546 | 0.2 | 496 | -4.37 | 156.03 |
| 4 | Delaware | 1,004 | 0.23 | 443 | 11.18 | 123.61 |
| 3 | Maryland | 5,858 | 0.23 | 430 | 99.66 | 410.72 |
| 2 | New Jersey | 9,094 | 0.24 | 411 | -0.9 | 241.88 |
| 1 | Illinois | 13,619 | 0.25 | 397 | -3.32 | 175.47 |
| U.S. | 185,580 | 0.13 | 752 | 12.76 | 185.15 |
So, Is a Crash Coming?
Here goes the question that every single economists, politicians, businessmen, and real estate investor out there have his/her own answer. But of course, if you read our articles frequently, our answer will always be: “Nobody can truly predict!”
However, it is noteworthy that while foreclosure activity has risen in some metropolitan areas, the numbers are still well below pre-2008 recession averages for the majority of major markets. For instance, the second quarter of 2023 witnessed 97,608 properties filing for foreclosure, significantly lower than the pre-Great Recession quarterly averages of 278,912. While this provides some solace, Rob Barber cautions that the surge in foreclosure starts, up 15% from the first half of 2021 and 36% from the first half of 2020, could indicate a potential rise in foreclosure activity in the coming years.
The first half of 2023 saw lenders foreclosing on a total of 22,672 properties, representing a 9% increase from the first half of 2022 and an astonishing 133% surge from the first half of 2021. However, these numbers, while concerning, are still 40% lower than those recorded in the first half of 2020, suggesting that there is still some way to go before foreclosure activity reaches its peak.
Our View!
It is important to contextualize the current foreclosure trends within the broader historical context of the United States’ housing market. For most of us, the 2008 financial crisis remains etched in the collective memory as one of the most devastating economic events in modern history (following the Internet Boom and Great Depression). During that tumultuous period, the housing market collapsed, leading to a tidal wave of foreclosures that obliterated families’ savings, crushed dreams of homeownership, and exacerbated the recession’s far-reaching consequences.
In the United States history, the Great Recession, as it came to be known, was the result of a confluence of factors, including the proliferation of subprime mortgages, predatory lending practices, and an unsustainable housing bubble. These elements created a financial powder keg that eventually detonated, leaving financial institutions bankrupt, homeowners destitute, and the broader economy in shambles. The scars of the Great Recession ran deep, prompting policymakers and regulators to institute far-reaching reforms and interventions aimed at preventing a similar catastrophe in the future.
Familiarize with Dodd-Frank
One of the landmark initiatives to emerge from the aftermath of the 2008 crisis was the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010. This comprehensive legislation sought to address the root causes of the financial meltdown by introducing a wide range of regulatory changes aimed at increasing transparency, accountability, and stability in the financial system. Among its many provisions, Dodd-Frank established the Consumer Financial Protection Bureau (CFPB), an agency tasked with safeguarding consumers from abusive financial practices, including predatory lending.
The implementation of Dodd-Frank brought significant improvements to the financial landscape, curbing many of the risky practices that had fueled the housing bubble. It also introduced stricter lending standards, which initially made it more challenging for some prospective homeowners to obtain mortgages. While these measures were crucial in preventing a repeat of the 2008 crisis, they also inadvertently contributed to a slowdown in the housing market’s recovery.
During the years that followed the Great Recession, the housing market exhibited a slow and uneven recovery. As the economy gradually rebounded, interest rates remained at historic lows, making homeownership more accessible to many. However, the tightened lending standards and increased regulatory scrutiny resulted in a surge of demand for rental properties, leading to a surge in rental prices in many parts of the country.
In this climate, institutional investors recognized an opportunity and entered the rental market on a massive scale. Private equity firms, hedge funds, and real estate investment trusts (REITs) began scooping up distressed properties at bargain prices and converting them into rental units. This institutional ownership of single-family rental properties has since become a significant feature of the modern housing market. And we can tell you that they would serve as many homebuyer’s friends and foes at the same time as Chad works directly with these institutional investors and funds.
Our Pessimistically Optimistic View
As the U.S. economy gradually regained its footing, the housing market began to show signs of life. Demand for homes surged, and housing prices climbed steadily. Many homeowners who had previously been underwater on their mortgages found themselves back in positive equity territory, enabling them to breathe a sigh of relief. The broader economy also benefited from the recovery in the housing sector, as real estate-related industries such as construction and home improvement saw renewed growth.
However, the buoyancy of the housing market also brought new challenges. In some regions, rapidly rising home prices began to outpace wage growth, making homeownership increasingly unattainable for many Americans. The issue of housing affordability emerged as a critical concern, with policymakers and advocates calling for measures to address this pressing problem.
In response to the affordability crisis, municipalities and states explored various strategies to promote affordable housing initiatives. Some implemented inclusionary zoning policies, requiring developers to set aside a certain percentage of new units for affordable housing. Others sought to streamline the approval process for affordable housing projects or provided financial incentives to developers willing to invest in affordable housing developments.
As the housing market continued to evolve, new technological innovations also made their mark. The rise of online real estate platforms revolutionized the way people searched for homes and interacted with real estate agents. These platforms offered advanced search filters, virtual tours, and in-depth property information, empowering buyers and sellers with more knowledge and convenience than ever before.
Amid these transformative changes, the COVID-19 pandemic struck the world like a tsunami. The sudden arrival of a highly contagious and deadly virus brought life as we knew it to a grinding halt. Economies shuttered, businesses faltered, and entire industries teetered on the brink of collapse. In the United States, the housing market was not immune to the upheaval.
In response to the pandemic’s economic fallout, the U.S. government swiftly rolled out various relief measures to mitigate the financial hardships faced by homeowners. Forbearance programs were introduced to offer temporary reprieves to homeowners struggling to meet their mortgage payments. Eviction moratoriums provided protection to renters, preventing mass homelessness during the most uncertain times.
These relief measures undoubtedly provided a lifeline to millions of Americans during the darkest days of the pandemic. Homeowners who would have otherwise faced the grim prospect of foreclosure found temporary relief through forbearance programs, allowing them to stay afloat while grappling with the challenges of job losses and economic uncertainty.
Likewise, renters who lost their income due to the economic shutdowns were shielded from immediate eviction, preventing an imminent humanitarian crisis. The combined efforts of the government, the private sector, and nonprofit organizations helped soften the blow and prevented an even more catastrophic impact on the housing market.
As the pandemic progressed, the vaccination efforts gained momentum, and the economy showed signs of revival. The impressive speed at which multiple vaccines were developed and distributed offered hope for a brighter future. As a result, the focus shifted from immediate crisis management to planning for the post-pandemic world.
The gradual lifting of pandemic-related restrictions and the termination of relief programs brought new challenges for homeowners and renters alike. For those who had deferred mortgage payments under forbearance, the time to resume regular payments arrived, adding to their financial burdens. Likewise, renters who had accumulated months of unpaid rent during the eviction moratorium faced the prospect of settling their arrears while keeping up with ongoing rent payments.
It is against this backdrop of recovery and uncertainty that the recent surge in foreclosure activity becomes all the more concerning. While the numbers are still below historical norms and far from the catastrophic levels witnessed during the Great Recession, they raise questions about the future trajectory of the housing market.
Potential Consequences
As Rob Barber, the CEO of ATTOM, points out, the surge in foreclosure starts during the first half of 2023 could be indicative of a potential rise in foreclosure activity in the coming years. Homeowners who are unable to cope with the end of pandemic relief measures may find themselves facing the distressing prospect of foreclosure, putting at risk the financial security they had worked so hard to achieve.
The impact of a foreclosure goes beyond individual homeowners. It reverberates throughout the entire community, affecting property values, local economies, and the social fabric of neighborhoods. Vacant and foreclosed properties can lead to blight and urban decay, dragging down the prospects for neighboring homes and businesses. The loss of homeownership can be emotionally and psychologically devastating for families, resulting in a loss of stability and a diminished sense of belonging.
Course of Actions
To prevent a potential foreclosure crisis, it is essential for policymakers and stakeholders to take proactive steps. Continuing to monitor foreclosure trends, identifying areas of vulnerability, and offering targeted support to at-risk homeowners will be crucial in mitigating the fallout. Collaboration between the government, housing agencies, financial institutions, and community organizations will be essential to crafting effective solutions.
Moreover, addressing the issue of housing affordability is paramount to ensuring the long-term stability of the housing market. Policymakers must explore innovative strategies to make homeownership more attainable for a broader segment of the population, particularly as home prices continue to outpace income growth in many regions.
Supporting affordable housing initiatives, incentivizing developers to invest in low-income housing projects, and promoting sustainable homeownership programs can go a long way in promoting housing stability and economic resilience. Moreover, addressing systemic issues that perpetuate income inequality and hinder wealth-building opportunities for marginalized communities is essential to creating a fairer and more equitable housing landscape.
In Conclusion
At the end, the recent rise in foreclosures across the United States is a concerning development that demands attention and proactive measures. As the nation emerges from the depths of the COVID-19 pandemic, it faces new challenges in navigating the delicate balance between economic recovery and housing stability. While the numbers are still below the catastrophic levels of the 2008 financial crisis, they serve as a reminder of the enduring vulnerability of the housing market and the need for continued vigilance.
The lessons learned from the Great Recession and the subsequent reforms have provided valuable insights into the complex dynamics of the housing market and the potential pitfalls that lie ahead. By drawing on this knowledge, policymakers, financial institutions, and community leaders can forge a path forward that prioritizes stability, affordability, and fairness. As the American Dream of homeownership endures, it is incumbent upon all stakeholders to ensure that this dream remains within reach for every aspiring homeowner, regardless of their circumstances or background. Only through collaborative efforts and a commitment to change can the nation weather the challenges of the present and build a stronger, more resilient housing market for the future.
Here at our firm, though we are slowly becoming a little more optimistic with our view on the housing market, we still have to advise again, again, and again to all of our clients to take additional steps to ensure purchasing/selling in the current environment is the right move. With that being said, would you buy or sell right now?
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