Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
Welcome to our newest question of the week!
With forbearance being lifted in many areas of the country, there have possibly been market reports you've seen on an influx of preforeclosures in the pipeline. If you have heard this, what area are you in and what is the expected impact?
How are you preparing for this possible influx? How can investors use this as an advantage? Are you concerned about the values in your area should a large number of homes come to the foreclosure market?
We want to hear from you! Share your thought here.
289 votes total
Yes, a large number of preforeclosures are being reported
"Illinois experienced over 14,000 foreclosures in the first six months of 2022, the highest rate in the nation.
One in every 385 housing units – or about 0.26% of homes – either received a default notice, had an auction scheduled or was repossessed by the bank. Instances of foreclosures in Illinois have nearly tripled from last year and are up 12% from two years ago."
Chances of mass foreclosures is small at this time because of the strong job market and equity in homes. Those that go into default will more than likely file bankruptcy to protect their home and restructure the debt because of the equity and the higher costs of rent.
We are still at near all time lows in foreclosure
We own around 250+ notes and 90% of defaulted go to BK over foreclosure at this time .
This is all relative. Most markets are experience large relative increases in foreclosures. It's common to see headlines like "Foreclosures rise 200% in 2022" which is technically true but lacks context. On a historical level, foreclosures remain extremely low. If you look at the Mortgage Bankers Association data, loans in default actually declined in Q2.
So yes, foreclosures are definitely going up! Is it going to make a meaningful impact on supply in the housing market? At this point, that is very unlikely.
With the equity gains of the last few years, it would in most cases be pretty stupid to get foreclosed on... just sell for a profit. You can still sell a house like normal when you're 2 or 7 months behind on the mortgage, assuming that doesn't put you underwater.
Also, a request. We know foreclosures were really low in 2020 and 2021, because they were more or less illegal to initiate. So saying things are up 5000000% from 2020/2021 isn't useful. I'd request that all comparisons include baseline pre-covid 2019 (or before) numbers. For basically everything we are measuring right now (not even just real estate related), we need to know how it compares to the 2019 baseline, because without that we cannot tell a "return to the baseline" from other patterns (& I suspect most things that are up/down eight zillion percent YoY are just returning to the 2019 baseline -- which is a good thing).
I haven't heard of a ton in the Pittsburgh area let alone PA, i believe we are at about 5k for the state right now. Pittsburgh itself is also pretty isolated from overall housing trends per say as far as severity
I was just reading an article on attom about how foreclosure starts are back up to prepandemic levels, and one of my markets - Jacksonville FL - is actually #3 in the country for foreclosure starts (1mil+ metros.)
However foreclosure can last a few years, so it's hard to say when these foreclosure starts see their way through and end up on market. In the meantime, I would say it has begun. There will be many folks looking to sell or do some type of loan workout (mods, short sales, DIL). I am personally preparing for this.
“Two years after the onset of the COVID-19 pandemic, and after massive government intervention and mortgage industry efforts to prevent defaults, foreclosure starts have almost returned to 2019 levels,” said Rick Sharga, executive vice president of market intelligence at Attom Data. “August foreclosure starts were at 86% of the number of foreclosure starts in August 2019, but it’s important to remember that even then, foreclosure activity was relatively low compared to historical averages.”
Among states where foreclosure proceedings began on at least 100 properties, starts grew the most between July and August in Oklahoma (up 80%), Tennessee (up 74%), Virginia (up 64%), Arkansas (up 53%) and Washington (up 50%). Illinois, where one in every 1,926 housing units had a foreclosure filing, had the highest August foreclosure rate among all states, followed by Delaware (one in every 2,387), South Carolina (one in 2,417), New Jersey (one in 2,441) and Florida (one in 2,950).
On a localized level, Cook County, Illinois (Chicago area) had the most August foreclosure starts with 798, followed by Los Angeles County, California, with 740; Harris County, Texas (Houston area), with 465; Suffolk County, New York (eastern Long Island), with 297; and Riverside County, California, with 280."
With the equity gains of the last few years, it would in most cases be pretty stupid to get foreclosed on... just sell for a profit. You can still sell a house like normal when you're 2 or 7 months behind on the mortgage, assuming that doesn't put you underwater.
Also, a request. We know foreclosures were really low in 2020 and 2021, because they were more or less illegal to initiate. So saying things are up 5000000% from 2020/2021 isn't useful. I'd request that all comparisons include baseline pre-covid 2019 (or before) numbers. For basically everything we are measuring right now (not even just real estate related), we need to know how it compares to the 2019 baseline, because without that we cannot tell a "return to the baseline" from other patterns (& I suspect most things that are up/down eight zillion percent YoY are just returning to the 2019 baseline -- which is a good thing).
I definitely agree on a baseline being 2019 for most everything. Any trends in data I pretty much have to throw the last two years out because we have nothing to truly compare it to.
The markets nationally that are now experiencing the bulk of foreclosures are the markets that have struggled in the past, including Cleveland, Atlantic City, Jacksonville, Chicago, and Columbia.
States experiencing most foreclosures in first half of 2022 include:
Illinois (0.26%)
New Jersey (0.24%
Ohio (0.21%)
Delaware (0.20%)
South Carolina (0.19%)
States that saw the greatest number of foreclosure starts in the first half of 2022:
As of August 11, 2022, "In New Jersey, foreclosures rose by 245.0%, from 2,660 in the first six months of 2021 to 9,177 in the first half of 2022. The foreclosure rate in the state of one in every 410 homes ranks as the second highest in the nation".
I agree with @Dave Meyer with how this is all relative. We have assets in all 50 states and considering the current environment, in many ways this is just business as usual with some catch up work to be done.
A lot of these foreclosures are properties that were in default prior to covid and then put into forbearance that are now entering the pipeline along with the status quo of normal default percentages. It isn’t that there are necessarily "more" foreclosures as much as it was just that covid backlogged the foreclosure market and now that forbearance was lifted. So it seems like a big increase but it really is below normal overall - we would need to see a big jump in unemployment to see a substantial increase in foreclosures across the country.
With such a strong job market this is nothing like 2008 - not to mention the past decade had stronger underwriting requirements.
@Alicia Marks Our brokerage was born of the '08' bust, and rapidly grew to dominate the SFR space.
Through the decline, tenant's were left right and center, it was a non-stop conveyor, and the most common statements were something to the effect of "I am loosing my home and need a place by ___".
Today, a very similar yet very different picture. We again have a non-stop conveyor of tenant's again. Although today, the most common statements are "I just sold my home and made this giant 6 figure pile of cash, I need to rent by closing, and I am going to wait for "the collapse" and buy again".
I hear this so many times per day now that it's just become nauseating. There is an ocean of buyers sitting the sidelines unlike any time in history, ever, just waiting for their magic # in price decline to jump in, and it's not just investor or institutional $ anymore. I hear nobody anywhere speaking on this retail shadow-$.
There is a ton of liquidity out there that would have to be whipped out to have anything even resembling '09'/'10' market.
As time goes by, and that liquidity to buy is evaporating due to rental and consumer spend, anxiety for purchase action will build. There will be a breaking point where these persons will feel a requirement to get off the sideline and buy before there liquidity is gone and purchasing is no longer attainable. This "acceptance" will spur the next buyers rush. And that retail buyer rush, will spur investor buyer rush as prices incline and inventory declines, yet again.
This whole "thing" we are in is not "an" event, it's a series. Waves that induce a next wave that induce a next wave.
When those of liquidity come off the sidelines in mass to buy before they no longer can, THAT will set the stage for a potential, and real, future fall. As liquidity is utilized and dried up, into leveraged position.
In general, things are in a low leverage position today. Collapse requires leverage, because it's basically the breaking of the lever.
And then the big "X" factor to it all, which I anticipate/project with total certainty is the normalization/securitization of the 40yr mortgage, for political gain but painted as "to help the people". Think NINJa 2.0. We are already seeing movement in this direction to press high leverage lending to educe home purchases.
No, this thing is going to get ran up into the stratosphere before any fall.
I don't see how anyone could be in a negative equity situation over the last ten years. Prices have been rising, rents have been rising, employment and wages have been rising, strict qualification requirements. Do houses go into foreclosure when the owner has equity? Why would this happen? Are there people who would just stop making their payments and surrender the property rather than go through the traditional sale process? Plus, with a ready supply of cash flush investors who flooding every mailbox and calling me constantly every day with immediate purchase offers, everybody has to know they have other options better than foreclosure. I can see two possible situations:
1. The owner dies or becomes otherwise incapacitated
2. The owner becomes financially incapable of making the payment and ignores the situation until it becomes an emotional crisis for them and they won't acknowledge the situation and solve it.
In Orlando - market is normalizing, not falling. Definitely not seeing foreclosures increase. Prices aren't even really dropping, they're just not going for $30k+ over asking anymore.
