Rising foreclosure rates can be a sign of a distressed market. As U.S. foreclosure activity drastically increases, could that be a sign of a housing market correction? 

foreclosures Soar: 181% increase

Last week, ATTOM Data Solutions released its first-quarter 2022 Foreclosure Market Report. The findings revealed 78,271 U.S. properties with foreclosure filings during the first quarter, an increase of 39% from the fourth quarter of 2021 and a soaring 132% from this time last year. The report also shows March 2022 foreclosures up 181% from March of last year.

IMG_9940Source: nashvillemls.com

Foreclosure increase was seen nationwide, with California, Florida, and Texas reporting the highest numbers. Among metropolitan areas, Chicago (3,101 starts), New York City (2,580 starts), and Los Angeles (1,554 starts) saw the most significant increase in foreclosure filings. Houston (1,431 starts) and Philadelphia (1,375 starts) rounded out the top five metro areas with the highest foreclosure activity. A start means the start of the foreclosure process. One in every 4,215 U.S. properties had a foreclosure filing at the end of March 2022. 

Bank Repossessions Up 41 %

In addition to the increase in foreclosures, bank repossessions also surged. Banks repossessed 11,824 properties nationwide through foreclosure in the first quarter of 2022, up 41% from the prior quarter and up 160% from last year. 

 

IMG_9941Source: mymove.com

States with the highest number of repossessions through foreclosure in the first quarter of 2022 were: 

 

  • Michigan (1,592)
  • Illinois (1,288)
  • Florida (673)
  • California (655)
  • Pennsylvania (639)

 

The Difference Between Foreclosure and Repossession

Although many people use the words foreclosure and repossession interchangeably, there are key differences.

Both foreclosure and repossession are the legal processes that describe what happens when a creditor takes away a home from the resident. 

Foreclosure is the process that lenders must follow when owners default on their home loans. Each state has its own foreclosure regulations that determine how long the process takes. For example, Wyoming averages 173 days while Hawaii averages nearly seven years.

According to ATTOM Data Solutions, at the end of 2021, the average number of days for foreclosure was 941 days. 

Repossession of a home happens at the end of foreclosure proceedings. The repossession is when the lender takes official possession of the property, and the residents are forced to vacate. 

What Does All This Mean for the Market?

George Ratiu, Realtor.com Senior Economist, believes that the rise in foreclosures is a sign that the regulatory protections put into place to help American homeowners keep their homes are beginning to wear off. 

Nearly 8 million homeowners who took advantage of mortgage forbearance programs at some point throughout the COVID-19 crisis were able to resolve their financial situations and end their forbearance by the end of 2021. 

Americans who are currently in a mortgage forbearance may be experiencing more permanent financial distress. Holden Lewis, home and mortgage expert at NerdWallet, says, “When their forbearance ends, they’re less likely to be able to resume their payments and more likely to end up in foreclosure.” 

According to the Mortgage Bankers Association (MBA) estimate, only 525,000 Americans are currently in a mortgage forbearance plan. 

Although a 181% increase in foreclosure activity sounds alarming, remember moratorium protections were in place for the last two years banning foreclosure proceedings, resulting in incredibly low foreclosure filings until recently. Foreclosure proceedings do not mean the house will ultimately be repossessed. It is a lengthy process, and many Americans are just getting back on track and will find a way to get current on their mortgage. With the U.S. unemployment rate decreasing, currently sitting at 3.6%, and the red-hot housing market creating an all-time high for home equity levels, there is no real reason to believe we will continue to see such drastic increases in foreclosures. 

 

 

 

 

 

Khalil El-Ghoul

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