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Why There Won’t Be a Flood of Foreclosures Coming to the Housing Market

The foreclosure rate was one of the key drivers of the housing crisis in 2008. Many families had taken on mortgages they couldn’t afford, and when the market crashed, banks foreclosed on these homes to recoup their losses. This created a glut of properties for sale, driving down prices even further.

Today, however, this isn’t happening because fewer people are taking out mortgages that they can’t pay back. Banks have tightened their lending standards over the last decade so that borrowers have to prove they can actually afford what they’re taking out. This means that those who are buying now are less likely to default on their loan payments in the future.

In addition, banks are now required to keep more capital in reserve, which helps protect them from potential losses. The government has also instituted programs like the Home Affordable Refinance Program (HARP) that help struggling homeowners refinance their mortgages and avoid foreclosure.

These changes have made it less likely for large numbers of foreclosures to hit the market. In fact, the number of homes being taken back by banks is currently at a 15-year low, showing strong signs that we won’t see a repeat of 2008’s housing crisis anytime soon.

This isn’t to say there aren’t any risks still on the horizon — as with any investment, there are always potential risks. But it does mean that we’re unlikely to see a repeat of the foreclosure crisis that caused so much damage in 2008. The combination of tighter lending standards and government intervention has made it possible for many homeowners to stay in their homes, while helping keep the market stable overall. This is good news for anyone looking to buy or sell a home, as well as those who are already in the midst of a transaction.

The stability of the market means that buyers can feel confident in their purchases and sellers can rest assured knowing their property won’t be devalued due to an influx of foreclosure properties. While it is still important to remain cautious when purchasing a home, the current outlook for housing appears much more stable than we’ve seen in recent years. With fewer foreclosures on the horizon, homeowners and prospective buyers alike have reason to feel optimistic about the future of the housing market.

Moreover, the improved foreclosure outlook has had a trickle-down effect on the rest of the economy. With more money in people’s pockets due to lower mortgage payments, they are able to spend more freely, thereby boosting consumer spending and helping to create a more robust economic environment. This is good news for all involved in real estate, from those looking to investors who can now look at properties with greater confidence knowing there is less risk of a large number of foreclosures hitting the market at any given time. All in all, the current trends towards fewer foreclosures bode well for everyone involved with real estate.

Data from the New York Fed shows there are still fewer foreclosures happening today than before the pandemic (see graph above):

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.

Homeowners can now take advantage of their equity and either remain in their current home, or sell it for a profit. Those looking to buy a home are now able to find more available options, as well as get better deals since the competition has decreased significantly due to the reduced number of foreclosures. Finally, investors can rest easier knowing that there is less risk associated with buying real estate today than ever before. All these factors combined have made real estate investing a very attractive proposition once again. This trend is expected to continue into the foreseeable future, providing even greater financial opportunities for those looking to invest in real estate.

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. If you have questions, let’s connect.

Information sourced from Keeping Current Matters

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