According to HousingWire, the latest quarterly data from the New York Fed shows foreclosures actually ticked down slightly in the second quarter and remain below 2019 levels. This might surprise people who have been hearing alarming headlines about foreclosures for the past few years, but the actual numbers tell a different story. What's more, this week's existing home sales report showed housing inventory down year over year while sales moved slightly higher and prices climbed 2 percent annually. That combination simply would not happen if we were seeing a real surge of foreclosures flooding the market.
Here's the key distinction I want to make clear. Since World War II, we have experienced many recessions, but only one true foreclosure crisis. That crisis came after the massive credit boom from 2002 to 2005, followed by a credit bust that pushed foreclosures higher throughout 2005, 2006, 2007, and 2008. The article notes we are nowhere near that pattern today. Foreclosures have not even climbed back to 2019 levels yet, so we are simply not in crisis territory.
To understand when foreclosures really become a problem, you need to watch a simple signal: a sustained surge in new listings hitting the market. When distressed sellers start getting foreclosed on in meaningful numbers, those homes flood the market because they become inventory that existing owners need to compete with. During the pre-recession years, new listings ranged from 250,000 to 400,000 per week for years on end. Today, new listings are not even back to normal seasonal levels of 80,000 to 100,000 per week. The article points out that when you have a real foreclosure buildup, you get a corresponding spike in new listings within a reasonable timeframe. We simply have not seen that happen.
Another factor working against a foreclosure crisis right now is equity. During the last crisis, over 23 percent of homes were underwater by 2010, meaning owners owed more than their properties were worth. When people have significant equity in their homes, they can sell to avoid foreclosure. Today's homeowners generally have much more equity than borrowers did in 2008, which provides a natural brake on foreclosure activity. The article emphasizes that without a massive credit boom and bust cycle driving lots of underwater mortgages, we are just dealing with normal supply and demand dynamics.
What I am seeing locally here in the Bay Area and across the East Bay is that this data aligns with what I observe in our market. Inventory remains relatively tight, buyers are active, and we are not experiencing the kind of distressed seller pressure that would indicate a foreclosure wave. Until we see both foreclosure data and new listings data moving together in a significant upward trend, we should remain realistic about the actual health of our housing market rather than reacting to sensational headlines.
