Economists hold conflicting views regarding the likelihood of a surge in foreclosures in 2023. While some experts anticipate an increase in the number of foreclosures, others argue that the wave has already subsided and will come to an end soon. However, there are certain facts that we can state with certainty about the current state of affairs.
Interest Rates Are on the Rise
Rising interest rates aren’t expected to slow down any time soon. Most housing professionals expect housing interest rates to continue to rise in 2023. Although experts are trying to avoid another housing recession, it’s likely that we will see one in the near future.
Shortage of Entry-Level Housing: A Challenge for First-Time Homebuyers
Currently, we are experiencing the largest shortage of entry-level housing that we’ve seen in the last 45 years. This problem is currently ongoing, and we aren’t sure when things will start to improve for entry-level buyers. This short supply of housing will keep prices elevated and will help foreclosures be avoidable.
Lending Practices Have Changed Since the Last Housing Crash
In the aftermath of the previous recession, several lending practices that were prevalent back then have been banned today. During that time, a substantial volume of loan products was procured by a secondary market in non-traditional ways. These loans were comparatively more accessible to obtain and resulted in a housing bubble that saw people residing in homes that they could not afford.
Today, 91% of mortgage loans are funded by the federal government, providing more security than was present in 2006, 2007, and 2008. For this reason, ZINC does not predict there will be a wave of foreclosures coming in the near future.
Statistics Don’t Show a Likely Foreclosure Wave
ZINC keeps an eye on several statistics from the Mortgage Service Center, which services 78% of mortgages, including absorption rate, days on the market, and delinquencies. While rates of loans and foreclosures have been slightly higher in the last few months, overall the percentage itself is at an all-time low. Delinquency last month was only 3.8%, nearly a 40-year low compared to 2007 when the rate was 6%, and 2008-2010 when it was almost 10%. Borrower forbearance requests are at a 50-year low of 0.16%.
Although foreclosure and delinquency rates have significantly reduced in almost five decades, the country is expected to witness a decline in home values due to high-interest rates and a shortage of housing supply. Nevertheless, the housing market is expected to stabilize in the near future, and there is a possibility of appreciation, although that might take some time to materialize.