Last month, FORTUNE reported that Foreclosures were up 11% in February. And, to make matters worse, double-digit increases in foreclosures are expected for the next six months.
To the casual observer, it may look like a wave of foreclosures is coming. Some buyers might even plan to wait until “foreclosures flood the market” or “the housing bubble bursts.” But we have additional information that will prove these scenarios to be highly unlikely.
Let’s look at three key facts indicating that there will not be a wave of foreclosures.
The foreclosure moratorium expired in October 2021.
Fact: Foreclosures Were at Historic Lows During the Pandemic
Yes, foreclosure filings are up. In February 2022, there were 25,833 foreclosure filings nationwide, representing an increase of 129% from the previous year. Please note that this number is filings, not repossessions (only 2,634 homes were repossessed through foreclosure that month).
But remember, there was a foreclosure moratorium from Spring 2020 through Fall 2021. So homeowners could not be foreclosed on for non-payment if COVID impacted them. And because this legislation was drafted and implemented quickly, there were some gray areas. So most lenders erred on the side of avoiding foreclosure whenever possible. They didn’t want to risk lawsuits over misinterpretations of the temporary legislation.
This led to a historic low in foreclosures throughout the worst of the pandemic. In 2021, the foreclosure rate was only .11% (for comparison, rates in the recession-recovery years were right around 1%). While foreclosures are increasing by large percentages, it’s only because they were well under the average for the last two years.
Fact: Most Homeowners Have Enough Equity to Avoid Foreclosure
In 2009 and 2010, foreclosure rates were up over 2.2% because of the housing market collapse. These extra-high figures are because many homeowners were underwater on their mortgages; they owed more than the house was currently worth. That’s not the case today.
Most of today’s homeowners who are in financial trouble have enough equity to avoid foreclosure by refinancing or selling the home.
Option 1: Refinance
Refinancing can lower monthly payments by reducing the interest rate or extending the loan term (or both). Homeowners struggling to pay the mortgage in the COVID aftermath may be able to refinance to keep the home.
Option 2: Sell
Selling is another viable option for homeowners struggling to make mortgage payments. With the new remote-work structure, many workers are able to relocate to less expensive housing markets, further from their employer’s office. For example, you might decide to sell your San Francisco home (with a median price of $1,500,000) and buy a less expensive home in Oakland (for a median price of $900,000).
Fact: CA Mortgage Relief Programs Can Help
There are still COVID-related mortgage relief programs available to CA homeowners in financial distress. Through the California Mortgage Relief Program’s Homeowner Assistance Fund, past due housing payments that were legally deferred during the pandemic can be eliminated completely for eligible homeowners.
So, No Wave of Foreclosures Then?
Nope, no wave of foreclosures; just a gentle market correction.
So please don’t wait for a flood of foreclosures to drop housing prices. If you want to buy, do it now before interest rates rise. Because, even if prices temporarily dip slightly in the future, any potential savings could be completely wiped out by rising interest rates.
On the other hand, if you’re concerned about a potential foreclosure on your home, you have options. You might apply for mortgage relief, refinance your mortgage, or sell your home and use the proceeds to relocate to a more affordable neighborhood.
Whatever your unique situation, we’re here to help. You can contact us anytime for a friendly, no-obligation consultation. We’ll answer all your questions, and get you on the path to achieving your goals!