With the marked changes in the housing market during the last half of 2022, rumors emerged that a tsunami of foreclosures may be imminent, hearkening to the crash of 2008.
However, the circumstances of the 2008 crash and our current market are hugely dissimilar. For example:
Fewer Homeowners are Behind on Their Mortgages
When the market crashed in 2008, more than nine million homeowners lost homes due to foreclosure or short-sale situations. This crash was precipitated by poor lending practices and overextended borrowers, many of whom suffered setbacks during the recessionary period. As the wave of distressed properties hit the market, a swift drop in home prices quickly followed.
Today, lending standards are much tighter, ensuring that buyers are fully qualified, which has resulted in fewer mortgage defaults. In fact, the mortgage delinquency rate has dropped to its lowest level since 1979!
During the Last Two Years There Have Been Fewer Foreclosures
Context is crucial when analyzing foreclosure statistics. Foreclosures have increased from last year, but remain near record lows. Many people were concerned that after the pandemic mortgage forbearance ended, a flood of foreclosures would hit the market. This flood simply hasn’t been the case and foreclosures remain below pre-pandemic levels.
Why is this so?
Many Homeowners Have Equity
Many homeowners facing financial distress and potential foreclosure may find that they have enough equity to sell their homes and avoid foreclosure—and perhaps make a profit on the transaction.
Ksenia Potapov, Economist at First American, says:
“Homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines, but also preventing housing distress from turning into a foreclosure. . . the result will likely be more of a foreclosure ‘trickle’ than a ‘tsunami.’”
The Takeaway
Don’t be misled by tantalizing headlines and remember that context is vital in the interpretation of market statistics. Every market is different and as your Sonoma County real estate resource, we at the McCall Team have a pulse on the market and all the experience you need to navigate the current market. If you’re thinking of buying or selling a home in Sonoma County in 2023, we need to strategize now. Call Trish today. 707-636-4215