The rising cost of just about everything from groceries to gas right now is leading to speculation that more people wont be able to afford their mortgage payments. And thats creating concern that a lot of foreclosures are on the horizon. While its true that foreclosure filings have gone up a bit compared to last year, experts say a flood of foreclosures isnt coming.
Take it from Bill McBride of Calculated Risk. McBride is an expert on the housing market, and after closely following the data and market environment leading up to the crash, he was able to see the foreclosures coming in 2008. With the same careful eye and analysis, he has a different take on whats ahead in the current market:
There will not be a foreclosure crisis this time.
Lets look at why another flood is so unlikely.
There Arent Many Homeowners Who Are Seriously Behind on Their Mortgage Payments
One of the main reasons there were so many foreclosures during the last housing crash was because relaxed lending standards made it easy for people to take out mortgages, even if they couldn't show that theyd be able to pay them back. At that time, lenders werent being very strict when assessing applicant credit scores, income levels, employment status, and debt-to-income ratio.
But now, lending standards have tightened, leading to more qualified buyers who can afford to make their mortgage payments. And data from Freddie Mac and Fannie Mae shows the number of homeowners who are seriously behind on their mortgage payments is declining (see graph below):
Molly Boese, Principal Economist at CoreLogic, explains just how few homeowners are struggling to make their mortgage payments:
Mays overall mortgage delinquency rate matched the all-time low, and serious delinquencies followed suit. Furthermore, the rate of mortgages that were six months or more past due, a measure that ballooned in 2021, has receded to a level last observed in March 2020.
Before there can be a significant rise in foreclosures, the number of people who cant make their mortgage payments would need to rise. Since so many buyers are making their payments today, a wave of foreclosures isnt likely.
Bottom Line
If youre worried about a potential flood of foreclosures, know theres nothing in the data today to suggest thatll happen. In fact, qualified buyers are making their mortgage payments at a very high rate.
