1) Alarming amount of foreclosures? 2)Housing market SLOWING down

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1) Alarming amount of foreclosures? 2)Housing market SLOWING down

Greg R.
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes

https://mortgageorb.com/forecl...

Foreclosure filings are up 132% from a year ago. Yes, one hundred thirty-two percent... and the housing market is showing signs of slowing.

On the first point... I'm wondering if the chickens have come home to roost. A ton of buyers have been over extending over the last 2 years and seemingly willing to bankrupt their future by bidding 50k, 100k, or even more over list for their "dream home". Over the last year there have been a ton of government handouts, including "child tax credit", "enhanced unemployment benefits", etc., that could have given people a false sense of security and propelled them into poor decisions.

One other scenario that's possible is that covid forbearance (cares act) expired. Individuals claiming a "covid hardship" were able to skip 18 (maybe more) mortgage payments. Individuals that were unable to qualify for deferment and not able to meet terms of a repayment plan could have been caught in a major pickle. Timing seems about right being that the pandemic kicked off about 26 months ago.

https://fortune.com/2022/04/15...

(a couple weeks old but still relevant) Point number 2... According to Redfin, 12% of homes on its site saw sellers cut prices in the week ending April 9. That was the biggest one-month spike Redfin saw in price cuts since 2015. Over the past month, there was also a 3% drop in requests for home tours.

From taking to my contacts in several different markets, boots on the ground are corroborating this. In 2 very hot markets that I'm involved with, I'm being told that a vast majority of the 50-100k over list offers are gone.

Are the rates to blame? "The sharp increase in mortgage rates is pushing more homebuyers out of
the market," wrote Daryl Fairweather, chief economist at Redfin.

It's simple economics... skyrocketing rates + skyrocketing prices don't create an exploding real estate market. Historic low rates + skyrocketing prices? Yup, that works. However, I'm sure I'll be hearing from the group that insists that prices are going to increase another gazillion percent in 2022 even if rates are 6-7%+, and that a crash of the housing market is impossible.



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Nick C.
Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
4y

To piggyback off Jonathan's question - 132% is a big, massive uptick and it sounds alarming. But if the baseline is during covid forbearance when foreclosures weren't allowed, it would make sense that the number would jump drastically once forbearance ends. Its good click bait though. 

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  • Jonathan StonePro Member
    Rental Property Investor · Camas, WA · Member since 2020 · 285 posts · 202 votes
    4y

    @Greg

    I won't say the housing market is going to continue to climb at the crazy rates it has been however as is typical of large data sets and headlines, less than 100k foreclosures per month would be abnormal in a slowing market.  Considering the lack of ability to process foreclosures in the last couple of years seeing that activity tick up and normalize should indicate that the housing market is stable or stabilizing. Housing prices dropping and people not paying tens or hundreds of thousands over asking seems correlated to the spike in interest rates.  Maybe we finally slow down and see housing do what it has historically done and grow at 3 to 5 percent.  Maybe we see monetary policy shift again and slow things way down into a real recession.  Maybe we see another 2,3 or even 4 trillion dollar budget addition to "keep the economy going". Any of it is possible, my dollars still say that over the next 10-20 years (my personal investment horizon) real assets, especially cash flowing ones in the US will beat most other opportunities to earn a return.

    20Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Greg R. Up 123% over what baseline?

    17Reply
  • Kar Sun
    Member since 2021 · 402 posts · 277 votes
    4y

    Foreclosures in CA? Likely. In southeast>>>Unlikely. 

    8Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Jonathan R McLaughlin:

    @Greg R. Up 123% over what baseline?

    Foreclosure Market Report, which shows a total of 78,271 U.S. properties with a foreclosure filing during the first quarter of 2022, up 39% from the previous quarter and up 132% from a year ago. See link in original post.

    1Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Kar Sun:

    Foreclosures in CA? Likely. In southeast>>>Unlikely. 

    Nope, not CA data... national.
    0Reply
  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    4y

    To piggyback off Jonathan's question - 132% is a big, massive uptick and it sounds alarming. But if the baseline is during covid forbearance when foreclosures weren't allowed, it would make sense that the number would jump drastically once forbearance ends. Its good click bait though. 

    40Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Jonathan Stone:

    @Greg

    I won't say the housing market is going to continue to climb at the crazy rates it has been however as is typical of large data sets and headlines, less than 100k foreclosures per month would be abnormal in a slowing market.  Considering the lack of ability to process foreclosures in the last couple of years seeing that activity tick up and normalize should indicate that the housing market is stable or stabilizing. Housing prices dropping and people not paying tens or hundreds of thousands over asking seems correlated to the spike in interest rates.  Maybe we finally slow down and see housing do what it has historically done and grow at 3 to 5 percent.  Maybe we see monetary policy shift again and slow things way down into a real recession.  Maybe we see another 2,3 or even 4 trillion dollar budget addition to "keep the economy going". Any of it is possible, my dollars still say that over the next 10-20 years (my personal investment horizon) real assets, especially cash flowing ones in the US will beat most other opportunities to earn a return.

    We're definitely seeing a slow shift back to reality. The question is, will these astronomical gains that we've seen over the last two years hold? With a recession on the horizon and rates skyrocketing, I'd say no. Will the market crash? Maybe, maybe not... but IMO we'll definitely see a market correction over the next few years.
    1Reply
  • Kar Sun
    Member since 2021 · 402 posts · 277 votes
    4y
    Quote from @Greg R.:
    Quote from @Jonathan Stone:

    @Greg

    I won't say the housing market is going to continue to climb at the crazy rates it has been however as is typical of large data sets and headlines, less than 100k foreclosures per month would be abnormal in a slowing market.  Considering the lack of ability to process foreclosures in the last couple of years seeing that activity tick up and normalize should indicate that the housing market is stable or stabilizing. Housing prices dropping and people not paying tens or hundreds of thousands over asking seems correlated to the spike in interest rates.  Maybe we finally slow down and see housing do what it has historically done and grow at 3 to 5 percent.  Maybe we see monetary policy shift again and slow things way down into a real recession.  Maybe we see another 2,3 or even 4 trillion dollar budget addition to "keep the economy going". Any of it is possible, my dollars still say that over the next 10-20 years (my personal investment horizon) real assets, especially cash flowing ones in the US will beat most other opportunities to earn a return.

    We're definitely seeing a slow shift back to reality. The question is, will these astronomical gains that we've seen over the last two years hold? With a recession on the horizon and rates skyrocketing, I'd say no. Will the market crash? Maybe, maybe not... but IMO we'll definitely see a market correction over the next few years.

     Market correction 15-30% likely. Back to 2018 levels unlikely. The real estate always trends upwards regardless of corrections. 

    5Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Nick C.:

    To piggyback off Jonathan's question - 132% is a big, massive uptick and it sounds alarming. But if the baseline is during covid forbearance when foreclosures weren't allowed, it would make sense that the number would jump drastically once forbearance ends. Its good click bait though.

    Read the original post, I specifically detailed this possibility. Regardless, that is a very meaningful/ material event. Millions of American's took advantage of forbearance and had a temporary force-field of protection over the last 2 years. Now that it's gone there could be significant impacts on the RE market. Mainly, we can see an infusion of inventory via bank owned foreclosures over the next several years. 

    0Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Kar Sun:
    Quote from @Greg R.:
    Quote from @Jonathan Stone:

    @Greg

    I won't say the housing market is going to continue to climb at the crazy rates it has been however as is typical of large data sets and headlines, less than 100k foreclosures per month would be abnormal in a slowing market.  Considering the lack of ability to process foreclosures in the last couple of years seeing that activity tick up and normalize should indicate that the housing market is stable or stabilizing. Housing prices dropping and people not paying tens or hundreds of thousands over asking seems correlated to the spike in interest rates.  Maybe we finally slow down and see housing do what it has historically done and grow at 3 to 5 percent.  Maybe we see monetary policy shift again and slow things way down into a real recession.  Maybe we see another 2,3 or even 4 trillion dollar budget addition to "keep the economy going". Any of it is possible, my dollars still say that over the next 10-20 years (my personal investment horizon) real assets, especially cash flowing ones in the US will beat most other opportunities to earn a return.

    We're definitely seeing a slow shift back to reality. The question is, will these astronomical gains that we've seen over the last two years hold? With a recession on the horizon and rates skyrocketing, I'd say no. Will the market crash? Maybe, maybe not... but IMO we'll definitely see a market correction over the next few years.

     Market correction 15-30% likely. Back to 2018 levels unlikely. The real estate always trends upwards regardless of corrections. 


    Completely agree. 15-30% seems very reasonable and within the realm of possibilities.
    0Reply
  • Adam Martin
    Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    That is a pretty alarming amount of foreclosures percent wise however when you consider froebarance and the fact foreclosures were ceased in many areas this is something we should expect.  Remember statistics are relative and if the baseline last year was as low as I think it should have been this isn't that huge of a jump and probably still below norms.  I expect similar headlines to come up on evictions are on the rise in certain areas when the moratorium lifts, the can was just kicked down the road to cause them all to come in at once.  With such rapid housing appreciation unless you let the house just fall into complete disrepair there is no reason you should be foreclosed on, just sell and walk away with money.  I don't see a correction as likely and feel like we may be in the new normal.  While I don't see such astronomical gains and see the housing market slowing I don't see a retreat.  Houses were getting a ridiculous number of bidders pumping the price but realistically it only takes one to buy.  The overall budget may go down where people are focused more on the monthly vs. total price but I don't see any decrease in the future and if so I see it as top down.  People in the market for the highest priced homes knocking down a rung to something cheaper but still a purchase and you see that continue through the market.  I may be wrong but I'm not smelling blood in the water and interest rate increases are already squeezing profit margin and making houses that would have cash flowed last year losers today and bigger losers tomorrow.  

    Disclosure: I have been wrong before and will most likely be wrong again but this is where my thought is.  I predict a lot of people looking back to today and saying I wish I had bought then.  I wish I bought more previously but I didn't think interest rates would jump this fast, hindsight is 20/20.  

    5Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Adam Martin:

    Disclosure: I have been wrong before and will most likely be wrong again but this is where my thought is.  I predict a lot of people looking back to today and saying I wish I had bought then.  I wish I bought more previously but I didn't think interest rates would jump this fast, hindsight is 20/20.  

    Agreed, none of us have a crystal ball. However, I disagree with your statement above. I don't think anyone is going to to be saying that they wish they purchased at the top of a bubble and paid 100k over value to secure an average property. But that's just my opinion... only time will tell.
    3Reply
  • Kar Sun
    Member since 2021 · 402 posts · 277 votes
    4y
    Quote from @Greg R.:
    Quote from @Adam Martin:

    Disclosure: I have been wrong before and will most likely be wrong again but this is where my thought is.  I predict a lot of people looking back to today and saying I wish I had bought then.  I wish I bought more previously but I didn't think interest rates would jump this fast, hindsight is 20/20.  

    Agreed, none of us have a crystal ball. However, I disagree with your statement above. I don't think anyone is going to to be saying that they wish they purchased at the top of a bubble and paid 100k over value to secure an average property. But that's just my opinion... only time will tell.

     We have to deal with WEF agenda of "you will own nothing and you will be happy" by 2030. This is a new variable that had prior to 2020 not been a part of the equation. We must understand that the conditions created are deliberate and malicious. Knowing the root causes helps.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y

    I addressed this on Facebook. Foreclosure activity was down more than 50% below normal during the pandemic and remains 35% lower than normal. 

    1st quarter 2022 saw 76,000 foreclosures. While that was significantly higher than the year before....its still drastically lower than the 90,000-120,000 per quarter which is the norm from pre-pandemic.

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    34Reply
  • Minna Reid
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    4y

    The % increase is irrelevant as foreclosures were on moratorium for 1.5 years, including one year ago. However, those foreclosures do have to work their way into the inventory. I am starting to see them coming on, but it is slow. Too soon to tell how that will go, but its not going to be good either way. 

    I do agree that the effect of these mass forbearances has been underestimated. They sounded nice enough - take 6 months, 12, 18 off your mortgage and we'll tack it on the back, for free! A free ride on the banks dime right? LOL. Never.

    The reality is very different. I've spoken to several  folks lately that have come out of their forbearances recently owing much more than expected and unable to get on track. If I recall correctly, the last of the forbearance bunch will be aging out end of June. I suspect many more will not be able to "get back on track", or will be surprised at how much of their equity their free ride cost them. The end of forbearances will become  the new wave of "loan workouts", and many simply wont be able to work it out.

    You simply cant shut it all down for two years and expect to not have to pay the piper at some point. And all of the above does not even account for raging inflation and rising rates.

    10Reply
  • Lydia R.
    Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes
    4y

    @Greg R. interesting point. I just got done reviewing the foreclosure lists for the counties I market to and I saw a fair percentage (10-15%) of the people on the list had bought their home within the last 36 months. There were even a handful that had purchased end of 2021 so essentially made zero mortgage payments since the purchase. It is concerning but not surprising.

    5Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    4y

    @Greg R., in terms of corrections: I think the days of the market going seemingly insane may be start to slow.  As for values, the fact is: all those "$100k over" properties are COMPS.  Those comps support values.  And with Redfin data, we are seeing more price reductions because sellers and agents got greedy and took the approach of: If comp 1 sold for $50k more than list, and comp 2 sold for $50k more than list, I am just going to list for $50k more than I think it is worth.  But the issue with that approach is it puts listings out of the "general" public's perceived value.

    When my wife and I list a flip, we always go to the low end of realistic and let the bidding wars start.  In last few years, we have sold our flips often times 15-20% over list price.  But we also wanted as many eyes as possible on the property and let consumer's desire to not lose let the price run up.  We have seen countless houses listed at the same time as our flips go on the market for high end of our range and sit. Then to drop price below our sale price and still sit.  Then to come off market, and come back on a week later at a lower price again before selling for list.

    The point being that there is a psychology to listings, and many people choose not to understand it.  Are rates up? yes.  Is that slowing demand? of course, since most buyers are monthly cash flow buyers.  But I don't see any correction coming in most markets.  But again, you have sold properties that are supporting comps and without a large number of distressed sales coming to market to drive down prices, I don't see prices dropping.  I think rates are going to hold prices steady for a while, but not actually bring prices down.

    8Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Minna Reid:

    The % increase is irrelevant as foreclosures were on moratorium for 1.5 years, including one year ago. However, those foreclosures do have to work their way into the inventory. I am starting to see them coming on, but it is slow. Too soon to tell how that will go, but its not going to be good either way. 

    I do agree that the effect of these mass forbearances has been underestimated. They sounded nice enough - take 6 months, 12, 18 off your mortgage and we'll tack it on the back, for free! A free ride on the banks dime right? LOL. Never.

    The reality is very different. I've spoken to several  folks lately that have come out of their forbearances recently owing much more than expected and unable to get on track. If I recall correctly, the last of the forbearance bunch will be aging out end of June. I suspect many more will not be able to "get back on track", or will be surprised at how much of their equity their free ride cost them. The end of forbearances will become  the new wave of "loan workouts", and many simply wont be able to work it out.

    You simply cant shut it all down for two years and expect to not have to pay the piper at some point. And all of the above does not even account for raging inflation and rising rates.

    I don't think moratorium is the right term... foreclosures were still happening, but just at a much lower clip due to people electing to take advantage of the CARES act forbearance option.

    I think you are spot on about forbearance's becoming the new wave of "loan workouts". Heck, they could become the same as what ARMs were back in 2008.
    0Reply
  • Minna Reid
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    4y
    Quote from @Greg R.:
    Quote from @Minna Reid:

    The % increase is irrelevant as foreclosures were on moratorium for 1.5 years, including one year ago. However, those foreclosures do have to work their way into the inventory. I am starting to see them coming on, but it is slow. Too soon to tell how that will go, but its not going to be good either way. 

    I do agree that the effect of these mass forbearances has been underestimated. They sounded nice enough - take 6 months, 12, 18 off your mortgage and we'll tack it on the back, for free! A free ride on the banks dime right? LOL. Never.

    The reality is very different. I've spoken to several  folks lately that have come out of their forbearances recently owing much more than expected and unable to get on track. If I recall correctly, the last of the forbearance bunch will be aging out end of June. I suspect many more will not be able to "get back on track", or will be surprised at how much of their equity their free ride cost them. The end of forbearances will become  the new wave of "loan workouts", and many simply wont be able to work it out.

    You simply cant shut it all down for two years and expect to not have to pay the piper at some point. And all of the above does not even account for raging inflation and rising rates.

    I don't think moratorium is the right term... foreclosures were still happening, but just at a much lower clip due to people electing to take advantage of the CARES act forbearance option.

    I think you are spot on about forbearance's becoming the new wave of "loan workouts". Heck, they could become the same as what ARMs were back in 2008.

    There actually was a moratorium on foreclosures for all federally backed loans from 3/2020 to 9/2021. That means all Fannie and Freddie loans, FHA, USDA, VA and many of the smaller guys followed suit. The great majority of loans could not foreclose during that time.

    4Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Minna Reid:
    Quote from @Greg R.:
    Quote from @Minna Reid:

    The % increase is irrelevant as foreclosures were on moratorium for 1.5 years, including one year ago. However, those foreclosures do have to work their way into the inventory. I am starting to see them coming on, but it is slow. Too soon to tell how that will go, but its not going to be good either way. 

    I do agree that the effect of these mass forbearances has been underestimated. They sounded nice enough - take 6 months, 12, 18 off your mortgage and we'll tack it on the back, for free! A free ride on the banks dime right? LOL. Never.

    The reality is very different. I've spoken to several  folks lately that have come out of their forbearances recently owing much more than expected and unable to get on track. If I recall correctly, the last of the forbearance bunch will be aging out end of June. I suspect many more will not be able to "get back on track", or will be surprised at how much of their equity their free ride cost them. The end of forbearances will become  the new wave of "loan workouts", and many simply wont be able to work it out.

    You simply cant shut it all down for two years and expect to not have to pay the piper at some point. And all of the above does not even account for raging inflation and rising rates.

    I don't think moratorium is the right term... foreclosures were still happening, but just at a much lower clip due to people electing to take advantage of the CARES act forbearance option.

    I think you are spot on about forbearance's becoming the new wave of "loan workouts". Heck, they could become the same as what ARMs were back in 2008.

    There actually was a moratorium on foreclosures for all federally backed loans from 3/2020 to 9/2021. That means all Fannie and Freddie loans, FHA, USDA, VA and many of the smaller guys followed suit. The great majority of loans could not foreclose during that time.

    Interesting, if that's the case I stand corrected. My understanding was that one had to request forbearance through the loan servicing/ loss mitigation department, and borrowers were only eligible if they were current on their mortgage when requesting forbearance.
    If what you're saying is true, does that mean that there were 0 Fannie, Freddie, FHA, USDA, and VA foreclosures between 3/20 and 9/21?
    0Reply
  • Nicholas MischPro Member
    Investor · Broadview Hts, OH · Member since 2016 · 310 posts · 280 votes
    4y

    People have more equity than ever before despite and even including many who took forbearance. Most of the people who took forbearance will have other ways to rework the equity or loans. I have thought a slight price correction will happen, but not a "crash". We had offers over the weekend on a property almost $40k over list price and this is still the norm here. If prices came down I could find more of my retail buyers properties, but I am still waiting for that to happen. 

    1Reply
  • Minna Reid
    Real Estate Broker · Jacksonville FL & Middletown, CT · Member since 2008 · 1k+ posts · 633 votes
    4y

    @Greg R. That is correct. There were extremely limited circumstances that allowed those entities to foreclose or evict (post foreclosure). There were almost none during that entire time. Only non-federally backed loans. 

    Also forbearances and forbearance extensions were offered to pretty much ALL borrowers, current or not. 

    0Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Nicholas Misch:

    People have more equity than ever before despite and even including many who took forbearance. Most of the people who took forbearance will have other ways to rework the equity or loans. I have thought a slight price correction will happen, but not a "crash". We had offers over the weekend on a property almost $40k over list price and this is still the norm here. If prices came down I could find more of my retail buyers properties, but I am still waiting for that to happen. 

    Yeah, but how are they going to access their equity? Cash out at 5.5/6 %?
    0Reply
  • Greg R.
    OP
    Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
    4y
    Quote from @Minna Reid:

    @Greg R. That is correct. There were extremely limited circumstances that allowed those entities to foreclose or evict. There were almost none during that entire time. Only non-federally backed loans. 

    Also forbearances and forbearance extensions were offered to pretty much ALL borrowers, current or not. 

    Thanks for the correction @Minna Reid. I was basing my info off letters I received from my mortgages which all stated the terms I listed above.

    2Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Russell Brazil exactly

    3Reply
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