Key Takeaways:
- The real estate market is very different from 2008
- Foreclosures are low thanks to extra equity
- Contact Linda Craft Team with any market questions!
You’re certainly not alone if you’ve seen recent headlines about foreclosures surging in the housing market. The stories in the media can be confusing right now. The good news is that all available data shows a foreclosure crisis is not likely, and understanding why, how, and what that means is crucial if you’re looking to make a real estate move in 2023. Here’s a deeper look at what the data means.
What is home equity?
There is reason to be hopeful for the real estate market in 2023, and that reason is because of equity. Equity is the top thing that differentiates the 2023 real estate market from the 2008 housing crash and what has so far prevented a wave of foreclosures.
In the simplest terms, your home’s equity is the difference between how much your home is worth and how much you owe. However, much more than what a house is worth or the profit left after a sale, a property’s equity value has other real-world benefits that affect housing markets locally and nationally. Today’s historic equity values will protect against foreclosure, inflation, and recession.
Here’s how.
The impact of equity on the housing market
In 2008, over nine million households lost their homes due to a foreclosure, short sale, or because they gave it back to the bank. Thanks to government forbearance programs at the outset of the COVID-19 global pandemic, millions of homeowners were able to stay in their homes, allowing them to get back on their feet during a very challenging period. With home values rising simultaneously, many homeowners who may have faced foreclosure under other circumstances could leverage their equity and sell their houses rather than face foreclosure, and that trend continues today.
A recent report from ATTOM Data demonstrates the power of equity by going even deeper into the numbers:
“Only about 214,800 homeowners were facing possible foreclosure in the second quarter of 2022, or just four-tenths of one percent of the 58.2 million outstanding mortgages in the U.S. Of those facing foreclosure, about 195,400, or 91 percent, had at least some equity built up in their homes.”
Not all foreclosures are the same
While foreclosure filings doubled in 2022, much of it was commercial property. We also need to see how last year’s foreclosure rates compare to the market’s more normal, pre-pandemic years. Thanks to the forbearance program and other relief options for homeowners, foreclosure filings were down to record-low levels in 2020 and 2021, so any increase last year in 2022 is unsurprisingly going to be an increase and nothing to be alarmed over. Many homeowners today have enough equity to sell their homes instead of facing foreclosure. As Ksenia Potapov, Economist at First American, says:
“Homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines, but also preventing housing distress from turning into a foreclosure. . . the result will likely be more of a foreclosure ‘trickle’ than a ‘tsunami.'”
Make a Smart Move
Remember that context is crucial when you see headlines about the increasing number of foreclosures today. While foreclosures are higher now than last year, foreclosures are still well below pre-pandemic years. If you have questions about your next move, connect with Linda Craft Team Realtors today.