Are foreclosures making a comeback?

I’ve been hearing a lot of talk in the last few weeks about foreclosures.

Or, more appropriately, phantom foreclosures because there really haven’t been any.

I’ve had discussions with a few brokers that asked about the process of approaching banks to handle their distressed assets and I told them what I’m going to tell you (and show you with data) that this pending spike in foreclosures is a myth.

“Mortgage balances that were 90 days or more delinquent remained at 0.57%, well below the range during the Good Times right before the pandemic and before the Financial Crisis, both of around 1% (red line in the chart below).”

Why?

It’s very simple - home equity.

In 2007, housing debt ballooned, the economy crashed, and people lost their jobs… so the property owner’s ability to pay was a giant problem AND the home values plummeted… so homeowners in distress couldn’t sell their home to pay off all of their debt.

In 2024, we don’t have the same issue. As a matter of fact, one could argue that it’s the complete opposite. But the most important aspect is that homeowner’s equity has grown tremendously since the pandemic. According to the Fed, homeowner’s equity is around $36B in the US.

And we aren’t seeing mass layoffs anywhere near the scale of 2007.

And even if we did, the property owner could sell their home and pay off their debt and still have money in their pocket.

And we aren’t seeing home values plummet.

Does that mean everything is peachy? Umm… no.

Consumer debt continues to be a massive problem.

Consumer credit card debt for just the “large” banks is near $1T… because inflation is causing consumers to put “necessities” on their credit card because the cost of living has increased so much in the last 4 years.

And that’s leading to a rise in the use of Home Equity Lines.

And this makes sense since Home Equity lines are somewhere between 9% and 10%, which is significantly lower than credit card interest rates, which currently average around 21%.

So we’re not in danger of any sort of foreclosure crisis, but we should continue to keep an eye on consumer debt and track HELOC applications and loans.

If we start to see HELOC debt increasing it could be a sign of other issues… but there’s no foreclosure crisis on the horizon.?

If you were considering trying to make a bank asset manager your best buddy, you probably don’t need to bother.

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1 Archana Pradan, “Home Equity Lending Rose to Highest Level Since 2008 in 2024”, corelogic.com, CoreLogic, Last updated 09 OCT 2024, Accessed 17 NOV 2024, https://www.corelogic.com/intelligence/blogs/home-equity-lending-rose-to-highest-level-since-2008-in-2024/