The mortgage interest rates are yet to stall, and foreclosure is up at a whopping 94% from a year ago. There were 19,500 foreclosure filings in the month of November, which are almost double from a year ago. It is important to keep in mind however that there were many foreclosure bans for the year 2022. Despite the numbers of foreclosures edging down a little bit, many people in the real estate market are concerned over whether they will experience a potential inflection point in the real estate market.
Is this a Sign for a Downward Trend?
The foreclosure data at hand is intimidating; however, it is still not the best gauge to predict whether the market will go downwards soon, especially with the changes in interest rates. Many of the sources that are looking at the foreclosure data in a state of panic, are ones that were also pointing to a crash in 2021 due to the forbearances.
According to the US foreclosure yearly chart by Attom, even though you are seeing twice as much of an increase in the recent years, the foreclosure volume is nothing compared to previous quarters. During earlier quarters, in the year 2005, you would have foreclosure filings ranging at around 90,000s.
Therefore, the current foreclosure filings are indeed 94% from last quarter, but they are also well below from the previous storms that people have faced. On top of that, you also have data on the credit quality of borrowers that you can look at to better estimate the situation.
Credit Score Analysis
When the real estate market was facing the great recession, the median credit score was 707 amidst large foreclosure spikes. The credit score in the start of 2022 was at 781, which is 74 points higher. This means that there are higher quality borrowers in the market who are less likely to be risky.
In the times of the recession, the low credit score meant that there were low quality borrowers at the time of recession. Today, there are much higher quality borrowers in the market which means that there is much less risk of default and fraud compared to the recession times.
Shady and unqualified lending practices often lead to unqualified borrowers going into homes, resulting in the great financial crises. This is not a situation that is being repeated in the current market. With the emergence of the Dodd-Frank Act, and other Consumer Protection Acts, banks have been very stringent towards their lending policies.
Housing Market Data
Even though the house listing prices are declining in the end of the year, sales prices are still up. This means that properties are still selling with multiple offers above the listing price. Nonetheless, it is still too soon to talk about the future of real estate pricing due to the fluctuation in mortgage interest rates.
Final Thoughts
When you look at the current ongoing trends and data, there is not much negative to say about the real estate market. It does not look like the market is heading towards a crash even with the foreclosure crises at hand.
