Housing Foreclosure Rate Drops Below Prior Recession

In March, as the coronavirus pandemic was taking hold on the nation, foreclosure rates were dropping to the lowest levels since the recession. According to research from ATTOM Data Solutions, there were 156,253 foreclosures in the US in the first quarter, a year-over-year decrease of 3%. In March, foreclosures in the US totaled 46,800, a month-over-month decrease of 3% and a year-over-year increase of 20%. The report shows a consistent decrease in foreclosure activity over the course of this recovery cycle.

“Prior to the more recent developments associated with the coronavirus pandemic our country is facing, employment and wages were up and the stock market soared to record levels, which contributed to Americans having access to multiple resources to keep up with their mortgages and avoid foreclosure,” Todd Teta, chief product officer at ATTOM, tells GlobeSt.com. “At the same time, home values spiked and interest rates fell to historic lows. That offered homeowners the opportunity to refinance their loans and lower their mortgage payments, while also providing greater collateral that could be used to get those more-affordable loans.”

While there has been a consistent downward trend of foreclosures, the first quarter actually saw a dramatic spike compared to the fourth quarter. Foreclosure numbers increased 42% during the quarter, even with such a strong performance in March. This was likely an glitch, according to Teta, rather than an indication of increasing foreclosure numbers. “It’s possible that leading up to the first quarter of 2020 there was some sort of industry-wide anomaly like a backlog in paperwork or something of that nature holding up filings,” he says. “However, the year-over-year decrease is another indicator of a consistently strong housing market.”

Nationally, repositions were down in 41 states and DC, and foreclosure starts decreased 11% year-over-year. Las Vegas, Denver and Detroit led the market in foreclosure declines. These three markets have also been popular growth markets this cycle, both in terms of population and investor activity. “For many of these secondary markets and across the country, the latest foreclosure data offers a steady-as-you-go reflection of the continuing strong housing markets; however, with the potential economic fallout on the horizon, this course is likely to shift dramatically over the coming months,” explains Teta.

Las Vegas is a prime example of how economic growth has aided in the recovery and helped stabilize foreclosures. After recovering from the recession, Southern Nevada’s housing market was on solid ground with strong building projects in place and tourism and home sales skyrocketing, foreclosures were a distant memory,” says Teta. “According to our annual foreclosure comparison data, lenders repossessed roughly 1,500 homes in the Las Vegas area in 2019, a stark comparison to 35,000 a decade earlier in 2009.”

Not every market saw  a decrease in foreclosure activity. Baltimore, Honolulu and Allentown, Pennsylvania, still have foreclosure rates above pre-recession levels. In Baltimore, for example, one of every 565 homes has a foreclosure filing. “Filings are continuing to increase, there is a heightened cause for concern, especially as the fallout from the coronavirus hits,” explains Teta. “Therefore, those areas will deserve a close watch over the coming months.”

Of course, the coronavirus pandemic will likely end this growth. Foreclosures are expected to increase this year as a result of the severe unemployment loss related to the pandemic. The number of foreclosures will largely depend on the permanent job loss once shelter-in-place restrictions end. “Right now, lenders are offering moratoriums and deferrals on mortgage payments and holding off on pursuing homeowners who fall behind on payments, but that can only last but so long,” says Teta.

Emergency measures will end before the economy has recovered, for those unemployed and benefitting from forbearance, there will be a gap between mortgage repayment and new employment opportunities. “At some point, banks are going to need mortgage holders to pay what they owe and go after those who don’t,” says Teta. “At that point, we should get a clear idea of how much foreclosures rise because of the economic fallout from the pandemic.”