Expert forecasts in the housing market

Rising foreclosures: Here's what experts say it means for the housing market

Have you been wandering around the housing market and thinking, "Here goes the neighborhood"? Well, you are not alone. ATTOM recorded a sharp rise in foreclosures across the United States in May of this year. Adding default notices, repossessions by banks, and auctions to the calendar, the US Mortgage Market Report found 35,196 US properties with foreclosure filings.

A lockdown is never a good sign — in 2008 and 2009, it was a blatant symbol of the Great Recession. This current data set shows an increase of 7% from April, but twice that number compared to 2022, down 14%. However, given all that foreclosures mean, analysts can use the data to predict future real estate trends.

Why foreclosure now?

Talks of another recession have continued for the better part of two years. Does this rise in foreclosures point to another one? And if so, why now? There are major factors, but one that has been around for a while now: COVID-19.

"…these people who chose to take advantage of programs where they couldn't pay their mortgages and put payments on the back end of the loan now face homes that are plummeting in price and find themselves underwater," said Christine De Conte, Co-President of Virtual Industry Leaders.

"The price hike has put many marginal buyers at the top of their qualifying range," Conti said. "Any change affecting household income could be disastrous as prices become more widespread and prices fall."

Increased housing inventory

Conte explained that new construction is being delivered to the market consistently, building up inventory while demand has fallen sharply due to high-interest rates.

"It is worth noting that rising foreclosures can lead to an increased flow of distressed properties into the market, which will create a buyer's market with opportunities for those looking to invest in real estate," said Michael Branson, CEO of All Reverse Mortgage. Inc. "This can decrease prices or rental costs over time and provide a great opportunity for investors or people looking to buy a home."

"We have sellers married to their current low-interest rates, which are afraid to make a move and give it up for almost double rates," said Conti, a broker and owner at Peacock Premier Properties. "Our inventory problems would be further mitigated if these sellers put their homes on the market."

Home prices may stabilize

Depending on where you live, the cost of a home may stay in one place. It may be the operative word.

"As inventory increases, there may be some mitigation of the intense competition we're seeing in the housing market," said Nate Johnson, investment and property management expert at NeighborWho. "This could stabilize home prices, making them more accessible to buyers priced out of the market in recent months."

"For savvy investors, the rise in foreclosures can represent an opportunity to acquire discount real estate," Johnson said. "Investors can then focus on renovations and improvements to increase the property's value or convert them into rental properties to take advantage of the changing rental market."

The rental market will change

"What a lot of people don't realize is just because a person has equity in their home, it doesn't necessarily mean they can pay for it," Conte said. "Increasing insurance and tax costs can easily push someone beyond their budget."

So when Americans can't afford to make a down payment on a home or pay all the costs associated with the house, the workaround is to find rental property instead. This could be good news for homeowners looking to make extra cash on their real estate investment by jumping into the rental market.

"As more properties become available, we may also see an increase in the number of tenants," Johnson noted. "Former homeowners who have faced foreclosure may turn to rent as an affordable housing option, which could lead to an expansion of the rental market."

Should you worry?

Not yet," Conte said. "I think foreclosure rates will continue to increase." "I know the clients I work with are preparing their loss mitigation departments in preparation for what's next in our market."

"Even though foreclosures are on the rise, it's not the big problem everyone is trying to figure out. We're just getting to a more normal level of foreclosure filings," said Brian Wittman, owner/CEO at SILT Real Estate and Investments.

"According to ATTOM, there were approximately 150,000 foreclosure files in the first quarter of 2019," Whitman said. "There's still only about 100,000 left in the first quarter of 2023. And it's up year-over-year about 10%. It still doesn't seem like the problem everyone thinks it will be.

"Seeing a 50% spike to nearly 150,000 foreclosures in one quarter would be a sign of concern and more attention," Whitman said.

"We certainly don't expect another slowdown like 2008, but some stability and balance is a welcome change from the post-COVID frenzy of multiple shows, waivers of inspections and evaluations, and other risky decisions," Conte said.

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