Why a Foreclosure Surge Isn't Likely

Even though data shows inflation is cooling, many people still feel the pinch on their wallets. High costs on everything from gas to groceries fuel concerns that more people might struggle to make their mortgage payments. But does this mean a big wave of foreclosures is coming?

Here’s why the data and experts say that’s unlikely.

Few Homeowners Are Seriously Behind on Their Mortgages

One major reason for the high number of foreclosures during the last housing crash was relaxed lending standards, which made it easy for people to take out mortgages even when they couldn’t prove they could repay them. At that time, lenders were less stringent about checking applicant credit scores, income levels, employment status, and debt-to-income ratios.

Since then, lending standards have tightened considerably. Lenders now rigorously assess applicants for home loans, resulting in more qualified buyers who are less likely to default on their loans.

Data from Freddie Mac and Fannie Mae shows that the number of homeowners who are seriously behind on their mortgage payments (delinquencies) has been declining for quite some time. This indicates that not only are borrowers more qualified, but they are also finding ways to navigate their challenges, exploring repayment options, or using the record amount of equity they have to sell and avoid foreclosure entirely.

No Sign of a Foreclosure Wave

For a significant rise in foreclosures, the number of people unable to make their mortgage payments would need to increase substantially. However, many buyers are making their payments, and homeowners have built up significant equity, making a wave of foreclosures unlikely.

Bill McBride of Calculated Risk, an expert on the housing market who predicted the foreclosure crisis in 2008, says:

“We will NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble) for two key reasons: 1) mortgage lending has been solid, and 2) most homeowners have substantial equity in their homes.”

Bottom Line

If you’re worried about a potential foreclosure crisis, the data does not suggest it will happen. Buyers are more qualified now, which is one reason they’re not falling seriously behind on their mortgage payments.