Don't Panic: Foreclosures and Bankruptcies Won't Derail the Housing Market

The housing market has been on a tear in recent years, with home prices rising at record levels. However, there are some signs that the market may be cooling off, and some people are worried that a wave of foreclosures and bankruptcies could crash the market.

While it is true that the number of foreclosures and bankruptcies has increased slightly in recent months, these levels are still well below where they were before the Great Recession. In addition, there are several factors that suggest that the housing market is not in danger of crashing.

Foreclosures

The number of foreclosures has been on a downward trend since 2010. In 2022, there were only 1.05 million foreclosure filings, down from 1.16 million in 2021. This is still well below the peak of 8.79 million foreclosure filings in 2010.

There are several reasons why foreclosure rates are so low. One reason is that the government has implemented a number of programs to help homeowners stay in their homes. For example, the Home Affordable Modification Program (HAMP) has helped over 3 million homeowners modify their mortgages.

Another reason for the low foreclosure rate is that homeowners have more equity in their homes today than they did before the Great Recession. The median home equity-to-loan ratio (HELV) is now 61.1%, up from 41.5% in 2010. This means that homeowners are more likely to be able to sell their homes for a profit than they were before.

Bankruptcies

The number of bankruptcies has also been on a downward trend since 2010. In 2022, there were 691,005 bankruptcy filings, down from 714,042 in 2021. This is still well below the peak of 2.2 million bankruptcy filings in 2009.

There are several reasons why bankruptcy rates are so low. One reason is that the economy has been improving since the Great Recession. This has led to more people having jobs and higher incomes, which has made it easier for them to pay their bills.

Another reason for the low bankruptcy rate is that the government has made it more difficult to file for bankruptcy. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed. This law made it more difficult for people to file for Chapter 7 bankruptcy, which is the most common type of bankruptcy.

Conclusion

While the number of foreclosures and bankruptcies has increased slightly in recent months, these levels are still well below where they were before the Great Recession. In addition, there are several factors that suggest that the housing market is not in danger of crashing.

Therefore, it is unlikely that foreclosures and bankruptcies will crash the housing market. However, it is important to monitor these trends closely, as they could indicate a slowdown in the housing market.

Here are some additional data points that support the argument that foreclosures and bankruptcies will not crash the housing market:

1. The unemployment rate is currently at a near-50-year low.

2. Home prices are still rising, but at a slower pace than they were in 2021 and 2022.

3. The number of homes for sale is increasing

Sources

1. ATTOM Data Solutions: https://www.attomdata.com/

2. Debt Org: https://www.debt.org/bankruptcy/statistics/

3. National Association of Realtors: https://www.nar.realtor/

4. U.S. Bureau of Labor Statistics: https://www.bls.gov/

5. U.S. Census Bureau: https://www.census.gov/