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Foreclosures and Bankruptcies Won’t Crash the Housing Market

Recent headlines may have you concerned about the rise in foreclosures and bankruptcies. If you’re in the real estate market, you might be wondering if this spells trouble for your plans to buy or sell a house. In this blog, we’ll delve into the data and clarify why, despite the increasing numbers, the housing market isn’t on the verge of another crisis.

Understanding the Data: It’s natural to be wary when you see reports of foreclosures and bankruptcies on the rise. After all, these events played a significant role in the housing market crash of the mid-2000s. However, it’s important to differentiate between then and now.

  1. Leading Indicators: Foreclosures and bankruptcies are considered leading indicators, meaning they can signal potential issues in the economy or housing market. While they are indeed increasing, it’s crucial to look beyond the numbers.
  2. The Bigger Picture: The data surrounding foreclosures and bankruptcies must be analyzed within the context of today’s market dynamics. Unlike the subprime lending practices and speculative behavior that fueled the previous crash, today’s market is built on a more stable foundation.

Why Foreclosures and Bankruptcies Won’t Cause a Crash: Here’s why the current rise in foreclosures and bankruptcies is unlikely to result in a housing market crash:

  1. Stringent Lending Practices: Following the last crash, lending practices have become significantly stricter. Buyers are required to meet more rigorous criteria, reducing the likelihood of widespread mortgage defaults.
  2. Equity in Homes: Many homeowners have built substantial equity in their properties due to the steady increase in home prices over the past decade. This equity acts as a buffer against foreclosure, as homeowners have a financial incentive to work through challenges to keep their homes.
  3. Supportive Policies: Government initiatives, such as mortgage forbearance programs and foreclosure moratoriums, have provided temporary relief to homeowners facing financial difficulties. These measures aim to prevent a surge of foreclosures.
  4. High Demand: The current housing market is characterized by high demand and limited supply. This imbalance contributes to rising home prices, making it less likely that homeowners will sell their properties at a loss.
As you can see, foreclosure filings are inching back up to pre-pandemic numbers, but they’re still way lower than when the housing market crashed in 2008. And today, the tremendous amount of equity American homeowners have in their homes can help people sell and avoid foreclosure.

While the increase in foreclosures and bankruptcies may grab headlines, it’s essential to keep things in perspective. The housing market today is fundamentally different from the pre-crash era. Stricter lending practices, homeowner equity, government support, and high demand all contribute to a more resilient market.

 So, let’s instead focus on the bar for this year and compare it to the bar on the far left (2019). It shows the number of bankruptcies today is still nowhere near where it was before the pandemic. Both of these two factors are reasons why the housing market isn’t in danger of crashing.

If you’re considering buying or selling a home, the current situation should not deter you. In fact, it may be an excellent time to navigate the market with the guidance of an experienced real estate professional who can help you make informed decisions. Feel free to reach out to us for expert advice tailored to your unique situation. Rest assured, the housing market remains stable, and your real estate goals are still within reach.

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