Forclosures and Bankruptcies Won’t Crash the Housing Market

Localized increases in foreclosures and bankruptcies do not necessarily indicate a nationwide housing market crisis. These issues often stem from regional economic factors, supply and demand imbalances, and local policies. It’s vital to consider the broader economic picture and consult local real estate experts for an accurate assessment. National and global factors can also affect the housing market, and government interventions may help stabilize it. Keep an eye on current data and trends to make informed decisions about buying or selling a house in your area, as the situation can vary widely depending on the location and the prevailing economic conditions.

Foreclosure Activity Rising, but Less Than Headlines Suggest

The recent increase in foreclosures comes after a period of historically low rates due to forbearance programs and relief measures in 2020 and 2021. While the end of the moratorium was expected to lead to more foreclosures, this doesn’t necessarily indicate a housing market crisis. To provide context, consider data from ATTOM, a property data provider, which shows a comparison of foreclosure filings from 2005 to the present. This data reveals that there have been fewer foreclosures since the housing crash in 2008, demonstrating a positive trend in the overall market resilience since then.

The data shows that foreclosure filings are rising, approaching pre-pandemic levels, but they remain significantly lower than the levels seen during the housing market crash in 2008. Today, American homeowners hold substantial equity in their homes, providing them with opportunities to sell and avoid foreclosure. This equity can be a crucial asset, serving as a safety net for homeowners facing financial challenges, further supporting the argument that the housing market is more resilient and less susceptible to crisis compared to the 2008 crash.

The Increase in Bankruptcies Isn’t Dramatic Either

The financial challenges experienced by various industries and small businesses during the pandemic did not result in a significant increase in bankruptcies, as indicated by the data below. While there has been a slight rise in bankruptcies since last year, with numbers nearly returning to 2021 levels, this alone does not warrant alarm. It’s important to view this increase in the broader context and consider factors such as government support, economic recovery efforts, and the capacity of businesses to adapt and bounce back, which may have contributed to the overall resilience of the economy despite localized challenges.

The lower numbers of bankruptcies in 2021 and 2022 can be attributed to the substantial government aid provided to individuals and businesses during the pandemic. To gain a clearer perspective, let’s compare this year’s data to that of 2019, which is on the far left of the graph. This comparison underscores that the number of bankruptcies today is still significantly below the pre-pandemic levels of 2019. These two factors, reduced bankruptcy rates and the sustained strength of the housing market, provide assurance that the housing market is not facing a crash, supported by the broader economic context and government intervention.

Bottom Line

Currently, it’s essential to interpret the data accurately. While foreclosures and bankruptcies are on the rise, these leading indicators do not suggest imminent trouble that would lead to another housing market crash. The situation should be considered within the context of the broader economic landscape, government support measures, and the fundamental strength of the housing market, which can help mitigate localized challenges.