Foreclosures are up 700%. Is this a red flag for the housing market?

Editor’s Note: An earlier version of this article incorrectly referred to a 700% increase in foreclosure initiations as a year-over-year (YOY) increase. In fact, it’s a 702% month-over-month increase from December 2021 to January 2022. The same report lists his YOY ​​gain in January 2022 at 457.63%.

January 2022 saw a significant increase in the number of foreclosure initiations, with ATTOM Data Solutions reporting 23,204 foreclosure applications. Black KnightRising foreclosure rates are not good news for the housing market. With foreclosures steadily increasing, could this be the first red flag of a housing market correction?

A person holding a phone with the words economic crisis over a notice of foreclosure paperwork.

Image Source: Getty Images.

There are things in numbers that you can’t tell just by looking at them

A 7x jump sounds huge, but even a small increase in foreclosures would have been a noticeable increase compared to recent levels. Moratorium protections that prohibit lenders from initiating foreclosures during the 2020 and his 2021 pandemics have resulted in the lowest number of foreclosure applications since this data was tracked at the national level.

Foreclosure starts today are still well below pre-pandemic levels, although they are much higher than in recent past. In 2021, there will be a total of 151,153 foreclosures for the entire year, which is 69% less than his 2019 pre-pandemic level. January 2022.

Foreclosure filings continue to increase monthly, with 25,833 new foreclosures in February 2022, an 11% increase from January 2022. This is welcome news for distressed real estate investors. But the numbers aren’t necessarily a red flag for the housing market.

Person sitting on front porch with sale sign looking worried.

Image Source: Getty Images.

Real signs of future red flags

Mortgage delinquency is the most obvious sign of future foreclosure filings coming up or down. At this point, given the low national delinquency rate of 3.3% as of January 2022, there is no reason to believe that foreclosure initiations will spike dramatically. time high. This means that about 2 million delinquent households now have solid options to avoid foreclosure.

But just because today’s numbers remain low doesn’t mean things will stay the same. Inflation is a growing concern for Americans as the cost of basic necessities such as fuel, groceries, electricity and property taxes rises rapidly. Budgets will undoubtedly tighten as a result, and delinquencies are very likely to increase in the years to come.

There is also a notable outstanding balance of previously pending but unaddressed loans. These are loans that have had some type of active loss mitigation action or loss mitigation effort completed, but are still past due, and the ultimate outcome of the loan may be foreclosure, debt repayment, or modification. Any of the long term loss mitigation solutions. Not known.

There are certainly signs of distress, but they are far from alarming levels and are not red flags for remediation at this time. The Federal Reserve has said it will raise interest rates to combat inflation, which could restrain rapid market growth. But for now, all signs point to the housing market overheating.

Liz Brumer-Smith has no positions in any of the mentioned stocks. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.

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