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Foreclosures Are Up a Lot—but This Is Why We Shouldn’t Panic

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Foreclosures are rising fast across the country, but there’s no reason to panic.

In February, foreclosure filings were up 11% from January, and foreclosure starts grew 40% month over month, according to the latest report from real estate information company ATTOM Data Solutions. There were 25,833 U.S. properties with foreclosure filings in February—a 129% increase from a year ago.

This doesn’t represent another massive wave of foreclosures, along the lines of what we experienced in the Great Recession. The latest numbers are artificially inflated after nearly two years of foreclosure moratoriums due to the COVID-19 pandemic. And foreclosures are still well below normal, pre-pandemic levels.

“In today’s market, we probably have less than half a percent of loans in foreclosure, with roughly 220,000 loans in foreclosure,” says Rick Sharga, executive vice president at RealtyTrac, an ATTOM company. “In a normal market, that number would be closer to 550,000.”

To come up with its findings, ATTOM looked at default notices, scheduled auctions, and bank repossessions in more than 3,000 counties nationwide, representing nearly 99% of the U.S. population.

The federal foreclosure moratorium ended on July 31, 2021, but borrowers had until Sept. 30 to apply for forbearance. The moratorium was put into place at the beginning of the pandemic to help homeowners with federally backed mortgages who may have lost jobs or income. Forbearance allowed them to temporarily put off their payments.

Now that moratoriums are over, along with the holidays— during which many lenders don’t like to begin proceedings—foreclosures are ticking up.

“We’ll almost certainly see double-digit, month-over-month gains and triple-digit, year-over-year gains through the first half of the year,” says Sharga. “After that, [annual] increases start to taper off a little bit, because we’re not going to be coming off such an artificially low base.”

It could have been worse. But there are more jobs than workers right now, with unemployment hitting a new pandemic low of 3.8% last month. That’s meant many folks who lost their jobs and were unable to pay their mortgages have found new work and were able to resume payments.

High home appreciation also helped. Homeowners who were facing foreclosure could often sell their homes at a profit rather than lose their properties to foreclosure. In some cases, prices rose so much they were even able to make a little money off of the sale.

“There’s an opportunity to sell their property and walk away with a check in their pocket and get a fresh start rather than losing everything to a foreclosure sale,” says Sharga.

About 87% of borrowers in foreclosure had positive equity in their homes, according to ATTOM. That’s the opposite of what happened during the Great Recession, when many folks owed more on their mortgages than their homes were worth.

Foreclosure starts increased in 40 states and the District of Columbia in February. California, Florida, Texas, Illinois, and Ohio led the nation. Among major cities, Chicago stands out with the most new foreclosure proceedings, reporting 1,075 foreclosure starts, followed by New York City (793), Los Angeles, (530), Houston, (471), and Atlanta, (415).

New Jersey, Illinois, and Ohio had the highest foreclosure rates in the country, followed by South Carolina and Nevada.

Cleveland; Atlantic City, NJ; Columbia, SC; Lakeland, FL; and Chicago topped the list of cities with the highest foreclosures. Other major cities with the worst foreclosure rates included Jacksonville, FL; Las Vegas; and Orlando, FL.

In Chicago, where 1 in every 2,058 housing units is in foreclosure, broker David Taylor, with Real Estate Collective, says the numbers are no cause for concern.

“Yes, they are higher, but they’re not really high. I’ve been selling for 19 years, so I remember what it was like in 2008, 2009, 2010,” says Taylor. “Those were really painful years.”

The post Foreclosures Are Up a Lot—but This Is Why We Shouldn’t Panic appeared first on Real Estate News & Insights |®.

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