No Need to Worry – Today’s Rising Foreclosures Are Not a Crisis

If you’ve seen the recent headlines about foreclosures increasing in the housing market, you might be getting flashbacks to the mortgage crisis of 2008 and feeling concerned. However, the data tells a different story than those alarming headlines would suggest.

Despite the media portraying it as dramatic, the reality is that today’s foreclosure increase is just a return to normal levels after the artificial lows caused by the COVID foreclosure moratorium from 2020-2021. During that period, millions of struggling homeowners were able to pause payments and avoid foreclosure thanks to that federal program.

Now that the moratorium has ended, foreclosure filings have understandably risen. But they are still nowhere close to the Crisis levels seen in 2008 when over 1 million homes per year were being foreclosed on. Current year projections are around 357,000 total foreclosures – a fraction of the previous crash.

The key difference from 2008 is that most homeowners today actually have significant home equity after years of rising prices. Back then, homeowners were underwater on their mortgages as prices plummeted, leaving them with no equity cushion when hardships hit. This time around, that equity is protecting homeowners and preventing the next foreclosure crisis.

A recent article from Bankrate explains, “In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes.”

So while the foreclosure rate rising makes for attention-grabbing headlines, it’s simply not evidence of another housing crisis brewing. It’s just a reversion to normal levels that were temporarily suppressed during the pandemic. With homeowner equity largely intact, there’s no reason to think this temporary foreclosure increase will lead to the type of market crash and pricing freefall we saw 15 years ago.

When you look at the full context instead of just the headlines, the data is reassuring that today’s housing market fundamentals remain strong despite the foreclosure rate increasing from ultra-low pandemic levels. No crisis here!