The Impact of Increasing Foreclosures on the Housing Market: Insights from Experts
The housing market has been causing concern for many as foreclosure rates in the United States have spiked. In May, ATTOM reported a sharp increase in foreclosure filings, reaching a total of 35,196 properties. This rise in foreclosures, although not as significant as during the Great Recession, indicates a 7% increase from April and a staggering 14% increase from 2022.
Analysts analyze these foreclosure rates to predict future trends in the real estate market. Speculation surrounding another recession has been ongoing for the past couple of years, and the recent surge in foreclosures raises questions about its possibility. The lifting of COVID-19 related moratoriums has contributed to the increase in distressed properties, as homeowners who took advantage of payment deferral programs are now left with properties whose prices are stabilizing but still underwater.
The rise in foreclosures may introduce more distressed properties to the market, potentially leading to a buyer’s market and providing investment opportunities. However, new construction projects continually contribute to the market inventory while the demand has declined due to higher interest rates.
While the current situation raises concerns, it also presents opportunities for investors or prospective homebuyers. There is a possibility of decreasing prices or rental costs over time, making it an appealing time to invest in real estate.
“We’ve got homeowners holding onto their current low interest rates, afraid to let them go for rates that are nearly double,” said Conti, who is also a broker-owner at Peacock Premier Properties. “We could solve our inventory issues if these sellers would just put their homes on the market.”
Depending on where you live, you might notice that home prices have remained relatively stable. Notice I said “might.”
“With more homes available, we might see some relief from the intense competition we’ve been seeing in the housing market,” said Nate Johnson, an investment and property management expert at NeighborWho. “This could help stabilize home prices, making it more manageable for buyers who were priced out in recent months.”
“For savvy investors, the increase in foreclosures could offer a chance to acquire properties at a discounted price,” Johnson said. “Investors can focus on renovations to boost property value or convert them into rentals to benefit from the evolving rental market.”
“People often assume that having equity in their homes means they can afford the mortgage payment,” Conti said. “Rising insurance costs and taxes can easily stretch someone beyond their budget.”
So when Americans can’t afford a down payment or the costs associated with buying a house, they turn to renting instead. This could be good news for homeowners hoping to make extra money by entering the rental market.
“As more properties become available, we might also see an increase in renters,” Johnson noted. “Former homeowners who faced foreclosure might choose renting as a more affordable housing option, which could expand the rental market.”
However, according to experts, we’re not quite there yet.
“I anticipate that foreclosure rates will continue to rise,” Conti predicted. “Clients I work with are preparing their loss mitigation departments for what lies ahead in our market.”
“Even with the spike in foreclosures, it’s not as alarming as everyone’s making it out to be. We’re simply returning to a more typical level of foreclosure filings,” said Brian Wittman, owner/CEO at SILT Real Estate and Investments.
In conclusion, the surge in foreclosure rates indicates potential changes in the housing market, creating both risks and opportunities for those involved.