Foreclosures and Bankruptcies Won’t Crash the Housing Market
Recent news headlines have highlighted a rise in foreclosures and bankruptcies, which might be concerning for individuals contemplating buying or selling a house. However, despite the surge in these numbers, the housing market isn't on the brink of a crisis.
Foreclosure rates have notably been low in recent years due to various relief options like the forbearance program introduced in 2020 and 2021. These initiatives aided many homeowners in staying in their homes during challenging times. With the conclusion of the moratorium, there was an anticipated increase in foreclosures. However, this uptick doesn't necessarily signify trouble for the housing market.
To illustrate the change from the 2008 housing crash, consider the graph below sourced from ATTOM, a property data provider. The graph examines properties with foreclosure filings since 2005, revealing a decline in foreclosures since the crash.
While foreclosure filings are gradually approaching pre-pandemic levels, they remain significantly lower than the numbers during the 2008 housing market crash. Presently, the substantial equity that American homeowners hold in their properties can facilitate sales and prevent foreclosures.
The spike in bankruptcies during the pandemic wasn't as dramatic as anticipated. Although the numbers have slightly increased compared to last year, they are nearly returning to 2021 levels. However, this rise isn't a cause for immediate concern.
The government's substantial aid—totaling trillions of dollars—provided to individuals and businesses during the pandemic contributed to lower bankruptcy rates in 2021 and 2022. A comparative look at this year's numbers against those from 2019 reveals that current bankruptcy figures are still significantly below pre-pandemic levels. These factors collectively signify that the housing market isn't at risk of crashing.
In summary, it's essential to interpret the data accurately. While foreclosures and bankruptcies are indeed on the rise, these indicators aren't suggesting an imminent housing market crash.