Even though data shows inflation is cooling, many people still feel the pinch on their wallets. And those high costs on everything from gas to groceries fuel unnecessary concerns that more people will have trouble making their mortgage payments. But does that mean there’s a big wave of foreclosures coming?
Here’s why the data and the experts say that won’t happen.
There Aren’t Many Homeowners Who Are Seriously Behind on Their Mortgages
One of the main reasons there were so many foreclosures during the last housing crash was that relaxed lending standards made it easy for people to take out mortgages, even when they couldn’t show they’d be able to repay them. At that time, lenders weren’t as strict when looking at applicant credit scores, income levels, employment status, and debt-to-income ratio.
But since then, lending standards have gotten much tighter. Lenders have become much more diligent when assessing applicants for home loans. That means we’re seeing more qualified buyers who are less likely to default on their loans.
That’s why data from Freddie Mac and Fannie Mae 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:
This means that not only are borrowers more qualified, but they’re also finding ways to navigate their challenges, explore their repayment options, or maybe even use the record amount of equity they have to sell and avoid foreclosure entirely.
The Answer Is: There’s No Sign of a Wave Coming
Before 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 equity built up, a wave of foreclosures isn’t likely.
Take it from Bill McBride of Calculated Risk — an expert on the housing market who, after closely following the data and market leading up to the crash, saw the foreclosure crisis coming in 2008. McBride says:
“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.”
Bottom Line
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.
Have questions from professionals? Connect with real estate brokers at KM Realty Group LLC.
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