October Economic Update

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Let’s chat about Crazy Uncle Keith’s side of things on foreclosures. ATTOM Data Solutions came out with some data about an increase in foreclosures, and it has a lot of people writing some clickbait-y headlines like, “Year-End Outlook: A ‘Tick To Torrent’ of Foreclosures Expected in 2022” from RISMedia. The biggie from their data is this stat: 

“According to the report, default notices, scheduled auctions or bank repossessions spiked 34% in this year’s third quarter.” 

Well sure… it’s up 34% from the floor. There was a moratorium on foreclosures for a vast majority of the mortgages so you couldn’t start the process. Now we have massive pent-up demand on this process as it starts up again.  

“Foreclosure starts are very likely to rise over the next six months to a year, with the increase ranging from a tick to a torrent,” says Todd Teta, Chief Product Officer at ATTOM Data Solutions.

They even say in their own article that it will be somewhere between a “tick and a torrent.”  That’s a pretty wide spread! So wide it is almost useless. That’s like me saying, “the weather tomorrow will be somewhere between freezing and super hot, dress appropriately.” 

In their own article they say: 

“This is a far cry from what happened when home values fell after the last recession, and many homeowners walked away from mortgages they couldn’t afford or no longer wanted to pay off,” Teta says. “When people hear that, they rightfully think back to the last time that we had a bunch of foreclosures, it had an impact on the housing market,” Hale says. “I don’t think we are going to see anything like that.”

This is only part of the equation. If we’re going to talk about foreclosures, don’t you think we should also talk about equity in homes? I know that matters on who/how many foreclosures will actually happen.  

Here is some good data on home equity from CoreLogic: 

“Negative Equity Falls in the second quarter of 2021, the total number of mortgaged residential properties with negative equity decreased by 12% from the first quarter of 2021 to 1.2 million homes, or 2.3% of all mortgaged properties. On a year-over-year basis, negative equity fell by 30% from 1.8 million homes, or 3.3% of all mortgaged properties, in the second quarter of 2020. Because home equity is affected by home price changes, borrowers with equity positions near (+/- 5%) the negative equity cutoff are most likely to move out of or into negative equity as prices change, respectively. Looking at the second quarter of 2021 book of mortgages, if home prices increase by 5%, 160,000 homes would regain equity; if home prices decline by 5%, 211,000 would fall underwater.”

As it sits today there are only two-point three percent of mortgaged properties that are underwater, and that number is down by 30% year over year. That whole article can be accessed HERE.  

So cliff notes: foreclosures are on the rise from nearly zero, and most people have equity, so I don’t see any wave of foreclosures coming anything like 2008. However, there are more now than in the last two years (which was nearly zero).

References:

RISMedia Article

CoreLogic Article

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