While you may have seen recent stories about the volume of foreclosures recently, context is important. Nationwide one in every 4,580 housing units had a foreclosure filing in April 2022.
States with the highest foreclosure rates were Illinois (One in every 2,241 housing units with a foreclosure filing); New Jersey (one in every 2,292 housing units); Ohio (one in every 2,585 housing units) Indiana (one in every 2,660 housing units; and here locally Nevada (one in every 3,043 housing units).
There were a total of 30,674 US Properties with foreclosure filing - default notices, scheduled auctions or bank repossessions - down 8 percent from a month ago but up 160 percent from 1 year ago.
Yet lenders actually repossessed only 2,830 U.S. properties through completed foreclosures (REOs) in April 2022. Down 36 percent from last month but up 82% from last year. According to ATTOM's monthly foreclosure report.
Rick Sharga, executive vice president of market intelligence for ATTOM says, "The extreme difference between foreclosure starts and foreclosure completions in April might be the beginning of a trend. Record levels of homeowner equity should provide financially distressed homeowners the opportunity to sell their homes prior to a foreclosure auction, meaning we should continue to see fewer foreclosure completions. While it may take several months to determine if this is actually what's happening, it seems like a real possibility.."
During the pandemic, many homeowners were able to pause their mortgage payments using the forbearance program. Both nationally and locally in Las Vegas, the goal was to help homeowners financially during the uncertainty created by the health crisis.
When the forbearance program began, many experts were concerned it would result in a wave of foreclosures coming to the real estate market, the same as there was after the housing crash in 2008. Here’s a look at why the number of foreclosures we’re seeing today is nothing like the last time.
1. There Are Fewer Homeowners in Trouble
Today’s data shows that most homeowners are exiting their forbearance plan either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. The graph below depicts those findings from the Mortgage Bankers Association (MBA):
The same MBA report mentioned above estimates there are approximately 525,000 homeowners who remain in forbearance today. Thankfully, those people still have the chance to work out a suitable repayment plan with the servicing company that represents their lender.
2. Most Homeowners Have Enough Equity To Sell Their Homes
For those who are exiting the forbearance program without a plan in place, many will have enough equity to sell their homes instead of facing foreclosures. Due to rapidly rising home prices over the last two years, the average homeowner has gained record amounts of equity in their home.
Marina Walsh, CMB, Vice President of Industry Analysis at MBA, says:
“Given the nation’s limited housing inventory and the variety of home retention and foreclosure alternatives on the table across various loan types, . . . Borrowers have more choices today to either stay in their homes or sell without resorting to a foreclosure.”
3. There Have Been Fewer Foreclosures over the Last Two Years
One of the seldom-reported benefits of the forbearance program was it gave homeowners facing difficulties an extra two years to get their finances in order and work out a plan with their lender. That helped prevent the foreclosures that normally would have come to the market had the new forbearance program not been available.
Even as people leave the forbearance program, there are still fewer foreclosures happening today than before the pandemic. That means, while there are more foreclosures now compared to last year (when foreclosures were paused), the number is still well below what the housing market has seen in a more typical year, like 2017-2019 (see graph below):
4. The Current Market Can Easily Absorb New Listings
When the foreclosures in 2008 hit the market, they added to the oversupply of houses that were already for sale. People were just walking away from homes. It’s exactly the opposite today. People are fighting over homes today and there aren't enough of them to go around. The latest Existing Home Sales Report from the National Association of Realtors (NAR) reveals:
“Total housing inventory at the end of March totaled 950,000 units, up 11.8% from February and down 9.5% from one year ago (1.05 million). Unsold inventory sits at a 2.0-month supply at the present sales pace, up from 1.7 months in February and down from 2.1 months in March 2021.”
A balanced market would have approximately a six-month supply of inventory. At 2.0 months, today’s housing market is severely understocked. Even if one million homes enter the market, there still won’t be enough inventory to meet the current demand.
Bottom Line
If you see headlines about the increasing number of foreclosures today, remember context is important. While it’s true the number of foreclosures is higher now than it was last year, foreclosures are still well below pre-pandemic years and equity is up, so owners have a choice. If you want more information regarding Las Vegas foreclosures or if you have questions about the Las Vegas Real Estate Market, let’s connect to talk through the latest market conditions and what they mean for you.