A Foreclosure Headline Does Not Tell the Whole Story
When the housing market shifts quickly, concerns about another housing crash can follow. For buyers, sellers, and homeowners, the question is understandable: could more foreclosures turn into a flood of homes hitting the market?
The original analysis behind this question pointed to several important differences from the last housing bubble. Foreclosures were much lower, lending standards had changed, and many homeowners had enough equity to sell rather than lose their homes.
Those differences matter. So does the period being measured. An increase from an unusually low level is not the same thing as a return to housing-crash conditions.
The figures discussed below are historical snapshots from the source material, not a description of foreclosure conditions at any particular moment. Their value is in showing how to put foreclosure headlines into perspective.
Why Lending Standards Matter
After the last major housing crash, more than nine million households lost their homes through foreclosure, a short sale, or giving the property back to the bank.
More relaxed lending standards were a major reason. People were able to take out mortgages they ultimately could not afford. That led to a wave of distressed properties entering the market and helped cause home values to plummet.
The original article contrasted that period with the revised lending standards that followed. Those standards led to more qualified buyers and fewer homeowners falling behind on their mortgages.
Look Beyond the Foreclosure Count
Mortgage delinquency figures help explain that distinction. In the Mortgage Bankers Association survey cited in the original article, the delinquency rate declined to 3.45%. It was the second consecutive quarter in which the rate reached its lowest level since the survey began.
Marina Walsh, the MBA’s Vice President of Industry Analysis, also reported that foreclosure starts and loans already in the foreclosure process dropped in the third quarter covered by that report. Both moved further below their historical averages.
That evidence supported the article’s central point: fewer homeowners were in mortgage trouble than during the conditions that produced the last foreclosure wave.
It also gives readers a useful question to ask when they encounter a worrying headline: Does the broader mortgage-payment data support the same conclusion?
Why Pandemic Forbearance Changes the Comparison
During the pandemic, many homeowners facing financial difficulty were able to pause their mortgage payments through forbearance. The program gave them extra time to get their finances in order and, in many cases, work out a plan with their lender.
There were concerns that the end of that relief would send a wave of foreclosures into the housing market. In the period examined by the original article, that feared wave did not materialize.
The New York Fed data cited in the article showed fewer foreclosures than before the pandemic. Foreclosures had increased compared with the prior year, when they had been paused, but remained well below more typical pre-pandemic levels.
They were also far below the foreclosure volumes seen during the housing crash.
Ask What the Increase Is Being Compared With
A year-over-year increase can sound dramatic without explaining much on its own. In this case, the comparison started with a period when foreclosures had been paused.
That is why the original analysis looked at more than one benchmark. It compared foreclosure activity with the unusually low pause period, with more typical pre-pandemic years, and with the housing crash.
Each comparison answered a different question. Activity could be higher than during the pause while still being lower than normal and nowhere near crash-era levels.
Before drawing a conclusion from a foreclosure headline, ask:
- What period is the headline using as its starting point?
- Was that period affected by foreclosure pauses or forbearance?
- How does the number compare with more typical conditions?
- How does it compare with the last major housing crash?
Home Equity Can Provide Another Way Out
The other major difference identified in the original article was homeowner equity. Many homeowners had enough equity to sell their homes instead of facing foreclosure.
Rapid home-price growth during the two-year period covered by the analysis had given the average homeowner record equity gains. People who had owned their homes longer could have had even more equity than they realized.
That matters because financial hardship and foreclosure are not automatically the same outcome. The article’s argument was that equity gave many struggling homeowners another path: selling the home.
Ksenia Potapov, an economist at First American, described high levels of tappable home equity as a cushion against potential price declines. She also explained that equity could keep housing distress from becoming foreclosure, making a smaller flow of foreclosures more likely than a flood.
What the ATTOM Figures Showed
The ATTOM Data report cited in the original article added detail. In the second-quarter snapshot it examined:
- About 214,800 homeowners faced possible foreclosure.
- That represented approximately four-tenths of one percent of the 58.2 million outstanding U.S. mortgages.
- About 195,400 of those homeowners, or 91%, had at least some equity in their homes.
There is an important distinction in those figures. Having some equity is not the same claim as having more than enough equity to sell. The report showed that most homeowners facing possible foreclosure had an equity position, while the broader article explained that many homeowners had enough equity to choose a sale instead.
The Bottom Line: Context Comes First
The original case against a foreclosure flood rested on three points: stronger lending standards, foreclosure activity that remained below pre-pandemic and crash-era levels, and substantial homeowner equity.
Those historical findings should not be treated as a guarantee about future outcomes. They explain why a rising foreclosure count, by itself, did not establish that another housing crash was coming.
Your practical next step is to check the comparison period behind any foreclosure headline and consider how the information relates to your own buying, selling, or homeownership plans. If you want help talking through those questions, reach out to Ed Parcaut for a straightforward conversation about your mortgage situation and next steps.
