If you've been keeping up with recent news, you may have come across reports discussing a surge in foreclosures and bankruptcies. This might be causing some concern, particularly if you're considering buying or selling a house.
However, it's important to note that despite the increasing numbers, the data indicates that the housing market is not on the verge of a crisis. Foreclosure Activity Rising, but Less Than Headlines Suggest
In recent years, foreclosure numbers have remained low, thanks to measures like the forbearance program and other relief options implemented in 2020 and 2021 to assist homeowners during challenging times. While there was an anticipated increase in foreclosures after the moratorium ended, it's crucial to note that this doesn't necessarily indicate trouble in the housing market.
To illustrate how things have evolved since the housing crash in 2008, refer to the graph below, based on research from ATTOM, a property data provider. The graph examines properties with foreclosure filings dating back to 2005, demonstrating a decrease in foreclosures compared to the post-crash period.
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.
The Increase in Bankruptcies Isn’t Dramatic Either
As you can see below, the financial trouble many industries and small businesses felt during the pandemic didn’t cause a dramatic increase in bankruptcies. Still, the number of bankruptcies has gone up slightly since last year, nearly returning to 2021 levels. But that isn’t cause for alarm.
The numbers for 2021 and 2022 were lower than more typical years. That’s in part because the government provided trillions of dollars in aid to individuals and businesses during the pandemic. 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. Bottom Line
Right now, it's crucial to understand the data. Foreclosures and bankruptcies are rising, but these leading indicators aren’t signaling trouble that would cause another crash.