Even though data shows inflation is cooling, many people are still feeling financial strain from high costs on essentials like gas and groceries. This has led to concerns that more people may struggle to make their mortgage payments. However, experts and data suggest a big wave of foreclosures is not on the horizon.
Fewer Homeowners Are Seriously Behind on Mortgages
One major factor behind the foreclosure crisis during the last housing crash was relaxed lending standards, which allowed people to take out mortgages they couldn’t afford. Since then, lending standards have tightened significantly, with lenders now being much more diligent in assessing applicants’ credit scores, income levels, employment status, and debt-to-income ratios.
As a result, we now have more qualified buyers with a lower risk of defaulting on their loans. Data from Freddie Mac and Fannie Mae shows a steady decline in the number of homeowners who are seriously behind on their mortgage payments (delinquencies). This indicates that borrowers are not only more qualified but are also finding ways to navigate financial challenges, such as exploring repayment options or using their substantial equity to sell and avoid foreclosure.
Why a Foreclosure Wave Isn’t Likely
For there to be a significant rise in foreclosures, the number of people unable to make their mortgage payments would need to increase substantially. However, with many buyers consistently making their payments and homeowners holding significant equity, a surge in foreclosures is improbable.
Housing market expert Bill McBride, who accurately predicted the foreclosure crisis in 2008, supports this view. McBride states, “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, the data does not support this concern. Today’s buyers are more qualified, and that’s one reason why they’re not falling seriously behind on their mortgage payments. The housing market is in a much stronger position than it was during the last crisis.