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Foreclosures: when and if they will start

Foreclosures happen more often when the economy is unstable. Inflation with the fear of a recession creates economic instability.

Many people in and outside the industry are curious when foreclosures will start. There’s little doubt that foreclosures happen more often when the economy is unstable. Inflation, coupled with a fear of recession, creates economic instability. It is the perfect condition for borrowers to default on their mortgages. That said, we don’t believe anyone should ask “When will foreclosures start?” for several reasons:

We Expected Higher Foreclosures

Many homeowners with mortgages are struggling due to the 2023 economy, job market, and domestic and international events. According to real-estate data provider ATTOM Data Solutions, there were 115% more foreclosures last year than in 2021. 

Yet, this news isn’t unexpected to anyone in the industry. Government and non-profit relief programs designed to help homeowners make payments during the COVID-19 pandemic kept people from defaulting on their loans. State and federal governments also issued moratoriums on foreclosures that halted proceedings. Now that many of these backups don’t exist, people dealing with inflation are logically struggling to make payments. 

The good news is that the current foreclosure numbers are nowhere near where they were pre-pandemic. They’re certainly a lot lower than during past financial, housing and economic crises. No one should worry about foreclosure numbers unless they see a dramatic increase over a short period or foreclosures occur concurrently with other events that indicate a crash, such as home prices dropping suddenly by 20% or higher or home values tanking drastically along with sales. 

ATTOM Data Solutions found that foreclosure numbers are down by 34% when compared to the period right before the start of the pandemic in 2019 and 89% when compared to 2010 during the Subprime Mortgage Crisis and Great Recession.

Marked Differences Exist Between Then and Now

During the worst years of the COVID-19 pandemic, everyone in power (i.e. governments, lenders, servicers and non-profits) acted almost immediately to prevent millions of mortgage defaults. The economy, despite various problems, remained strong during this period as well. 

Similar joint efforts didn’t exist from 2007 to 2010. They also didn’t occur spontaneously. Many hoping to prevent mortgage crises from happening again spent almost a decade pre-pandemic learning why the problem occurred, brainstorming ideas, and enacting plans to avoid another one. They did everything possible to ensure that predatory lending practices and other types of fraud couldn’t happen quickly.

Home and property owners also receive access to exclusive information online through various entities and organizations to enable more informed decisions in the face of financial difficulty. People no longer took on the burden of a mortgage unless capable of meeting their knowledge and financial obligations.

Additionally, fewer borrowers deal with underwater scenarios as their homes retain value rather than losing it. Higher mortgage rates and decreased sales don’t diminish the home value in the majority of markets. As a result, borrowers have more flexibility and leverage when job loss, health issues, and other emergencies arise and when they want or need to sell or refinance.

The Future of Mortgages in 2023 and Beyond

We can’t give a definitive answer when asked “when foreclosures will start?” because they never stopped. We can only predict when they might reach crisis levels.

We know that warnings existed before the Subprime Mortgage Crisis, such as skyrocketing prices and plummeting value. We’re not seeing those signs now. States experiencing the highest number of foreclosures, such as California, Ohio, Florida, Illinois and Texas, always have high defaults. Many borrowers couldn’t catch up with their payments during the pandemic peak, which means that foreclosures stopped by moratoriums have skewed numbers away from “norms.”

We’re optimistic because plenty of programs still exist to help homeowners in need prevent foreclosure. Finally, the majority of financial experts have predicted that the country will experience only a mild recession this year.

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