Many homeowners worry that the housing market is headed for a crash similar to the one that occurred in 2008, but our current market situation differs significantly from the landscape of the early 2000s. For one, there are currently far fewer foreclosures occurring than there were at the start of the recession, but let’s explore a couple more signs that the real estate market isn’t approaching a wave of foreclosures.
Fewer Homeowners in Financial Distress
More than nine million people lost their homes during the years of the last housing crash, but much of that number was due to mortgage lenders approving mortgage loans that borrowers couldn’t reasonably afford. This compounded the tight financial situations ahead and caused home values to drop.
Tighter restrictions have ensured that homeowners are more able to afford mortgage payments and fewer households are falling behind on payments.
Foreclosure Numbers Have Dropped
While the news is correct that the number of foreclosures is rising, the foreclosure rates are still well below the levels seen in a standard set of years. Thanks to the forbearance program, homeowners could pause their mortgage payments to get through the struggles brought on by the pandemic.
After that pause, rates are increasing, but in addition to being lower than they were before the start of the pandemic, they’re also lower than they were during the 2008 market crash.
In 2019, approximately 278,000 homes were in foreclosure, and in 2009, foreclosures were up to more than 2 million.
By comparison, this year’s foreclosure rates rest at around 88,000 and while they were only at around half this number a year ago, the forbearance program’s effective pause on mortgage payments had a lot to do with that.
Greater Equity
In fact, a recent report from data firm Black Knight found that the average U.S. homeowner has $153,000 in “tappable” home equity — an all-time high.
The average U.S homeowner’s tappable home equity has seen a rise.
The greater equity leaves the owner better off to invest on new assets or to reduce their liabilities instead of simply selling the house.
More homeowners have reasonable equity in their homes, meaning that they’ve got the opportunity to sell rather than face foreclosure. Home prices have increased significantly over the past two years, which led to record improvements in home equity. This is especially true for homeowners who have been in their homes for several years.
Though the population has taken its time adjusting to the long-term effects of the pandemic, the headlines you’re seeing don’t accurately reflect the current real estate market’s status. More foreclosures are happening now than there were a year ago, but the rates are still much lower than before the pandemic started.
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