The rising cost of just
about everything from groceries to gas right now is leading to
speculation that more people won’t be able to afford their mortgage
payments. And that’s creating concern that a lot of foreclosures are on
the horizon. While it’s true that foreclosure filings have gone up a bit compared to last year, experts say a flood of foreclosures isn’t coming.
Take it from Bill McBride of Calculated Risk.
McBride is an expert on the housing market, and after closely following
the data and market environment leading up to the crash, he was able to
see the foreclosures coming in 2008. With the same careful eye and
analysis, he has a different take on what’s ahead in the current market:
“There will not be a foreclosure crisis this time.”
Let’s look at why another flood is so unlikely.
There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgage Payments
One
of the main reasons there were so many foreclosures during the last
housing crash was because relaxed lending standards made it easy for
people to take out mortgages, even if they couldn't show that they’d be
able to pay them back. At that time, lenders weren’t being very strict
when assessing applicant credit scores, income levels, employment
status, and debt-to-income ratio.
But now, lending standards have tightened, leading to more qualified buyers who can afford to make their mortgage payments. And data from Freddie Mac and Fannie Mae shows the number of homeowners who are seriously behind on their mortgage payments is declining (see graph below):
Molly Boese, Principal Economist at CoreLogic, explains just how few homeowners are struggling to make their mortgage payments:
“May’s overall mortgage delinquency rate matched the all-time low, and serious delinquencies followed suit. Furthermore,
the rate of mortgages that were six months or more past due, a measure
that ballooned in 2021, has receded to a level last observed in March
2020.”
Before there can be a significant rise in
foreclosures, the number of people who can’t make their mortgage
payments would need to rise. Since so many buyers are making their
payments today, a wave of foreclosures isn’t likely.
Bottom Line
If
you’re worried about a potential flood of foreclosures, know there’s
nothing in the data today to suggest that’ll happen. In fact, qualified
buyers are making their mortgage payments at a very high rate.
Sally Heldman
Broker Owner
Metro Brokers / Heldman Real Estate
303.475.4508 CELL
sally@sallyheldman.com