In January, the number of foreclosures increased sevenfold from December, with around 33,000 loans being foreclosed, according to a report by mortgage data and analytics firm Black Knight. Additionally, data from real estate analytics firm ATTOM Data Solutions found that lenders repossessed 2,634 U.S. properties through completed foreclosures in February 2022, representing a 70% increase from to last year (though still down 45% from last month).
What do these foreclosures say about the housing market?
Realtor.com senior economist George Ratiu said January’s spike in foreclosures is an early signal that many of the regulatory protections put in place during the pandemic to help Americans stay home are beginning to fade. Indeed, millions of people obtained mortgage forbearance during the pandemic, which put their mortgage payments on hold. Most of them got back on their feet and ended their abstentions in 2020 and 2021, the pros say.
People who stayed in forbearance until 2022 may be more likely to suffer permanent financial hardship. “When their forbearances end, they’re less likely to be able to resume payments and more likely to end up in foreclosure,” says Holden Lewis, home and mortgage expert at NerdWallet. Additionally, for many, the forbearance period is expected to end soon and there is a backlog of loans that are either in loss mitigation or past due, even after exiting mitigation, that could still be seized in the coming months,” says Ratiu.
The rise in foreclosures “also indicates that the economic recovery, and in particular employment, is not complete. We lost 20.2 million jobs in April 2020 alone as the government imposed closures of large scale and since then the economy has created 18.8 million jobs, but we are still below the pre-pandemic level,” says Ratiu.
That said, “the bright side of the housing and landlord markets is that the January foreclosure rate remains 40% lower than the value recorded before the pandemic,” says Ratiu. In fact, say the pros, the housing market is still strong, thanks in part to mortgage interest rates that are still near record lows (although they have been rising recently). “With demand for homes so much outstripping supply, no one is going to get a foreclosure for a theft. Competing buyers are driving up prices for all homes, including foreclosures,” says Lewis.
Should I buy a foreclosure?
Although no one wants to profit from another’s misfortune, you may encounter foreclosed properties in your search for a home. Here’s what you need to know to buy one.
First, it is important to understand the different types of foreclosures offered for sale. Depending on the stage of the delinquency process, you may find pre-foreclosures where a lender notifies the homeowner that they are in default; short sales where a homeowner attempts to sell the home for less than mortgage value due to financial hardship; sheriff’s auction where defaulted properties are sold at courthouses; bank foreclosures known as real property (REO); and government foreclosures where properties are purchased with loans from the Federal Housing Finance Agency or the Veterans Administration.
Foreclosure properties can be found on the Multiple Listing Service (MLS), among other places. They “are also listed in newspapers, bank offices and websites. For buyers considering a foreclosed property, auctions are another way to find available homes,” says Ratiu.
But, in today’s market, where a shortage of homes for sale is keeping prices high, buyers may not necessarily find a bargain when looking at foreclosed properties. “Banks that own REO homes have an incentive to sell them quickly, but they are aware of market prices and are also invested in recovering the value of the home. For buyers considering a foreclosed property, it is important to go through an inspection to determine the physical condition of the home. Get an estimate of the cost of repairs, which should also determine the bid price they might want to make,” says Ratiu. Adds Lawrence Yun, chief economist at the National Association of Realtors: “Many real estate investors are looking for a good foreclosure deal, but it’s still a seller’s market.”