Why a Foreclosure Wave Isnt on the Horizon

Even though data shows inflation is cooling, a lot of people are still feeling the pinch on their wallets. And those high costs on everything from gas to groceries are fueling unnecessary concerns that more people are going to have trouble making their mortgage payments. But, does that mean theres a big wave of foreclosures coming?

Here's a look at why the data and the experts say thats not going to happen.

There Arent Many Homeowners Who Are Seriously Behind on Their Mortgages

One of the main reasons there were so many foreclosures during the last housing crash was because relaxed lending standards made it easy for people to take out mortgages, even when they couldnt show theyd be able to pay them back. At that time, lenders werent being as strict when looking at applicant credit scores, income levels, employment status, and debt-to-income ratio.

But since then, lending standards have gotten a whole lot tighter. Lenders became much more diligent when assessing applicants for home loans. And that means were seeing more qualified buyers who have less of a risk of defaulting on their loans.

Thats whydatafromFreddie MacandFannie Maeshows the number of homeowners who are seriously behind on their mortgage payments (known in the industry as delinquencies) has been declining for quite some time. Take a look at the graph below:

What this means is that, not only are borrowers more qualified, but theyre also finding ways to navigate through their challenges, exploring their repayment options, or maybe even using the record amount of equity they have to sell and avoid foreclosure entirely.

The Answer Is: Theres No Sign of a Wave Coming

Before there can be a significant rise in foreclosures, the number of people who cant make their mortgage payments would need to rise significantly. But, since so many buyers are making their payments today and homeowners have so much equity built up, a wave of foreclosures isnt likely.

Take it from Bill McBride ofCalculated Risk an expert on the housing market who, after closely following the data and market leading up to the crash, was able to see the foreclosure crisis coming in 2008. McBride says:

We will NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble) for two key reasons: 1) mortgage lending has been solid, and 2) most homeowners have substantial equity in their homes.

Bottom Line

If youre worried about a potential foreclosure crisis, know theres nothing in the data to suggest thatll happen. Buyers are more qualified now, and thats one reason why theyre not falling seriously behind on their mortgage payments.