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Homebuyers act fast as foreclosures hit pre-recession lows

mortgage foreclosure
Reading Time: 3 minutes
July 26, 2018.

Loan officers have been saying for months that it’s a great time to buy, and today’s proof is in the foreclosure numbers. “First Look” data from mortgage analytics provider Black Knight, Inc., shows that mortgage foreclosure starts and active foreclosures have dropped to pre-recession levels, even reaching a 17-year low.

What do foreclosures have to do with homebuyer confidence? Everything.

Black Knight’s data may take a little interpreting, but it’s sending homebuyers an important message:

  • From May 2018 to June 2018, mortgage delinquencies rose by 2.71 percent. Black Knight qualifies that this jump is normal for the season.
  • What’s more interesting is the 3.74 percent of outstanding mortgages 30 or more days behind on payment but not yet reaching foreclosure. This number dropped 1.59 percent in June 2018 from the previous year.
  • Mortgage delinquencies also increased by 0.12 percent from May to June of 2017.
  • For the first time since the Great Recession, active foreclosures now sit below 300,000 compared to the third quarter of 2006.
  • This equates to a 119,000 year-over-year drop in active foreclosure inventory.
  • There were just 43,500 total foreclosures at the beginning of June 2018 — reaching a 17-year low.

In translation, low foreclosure rates are good for the housing market. Not only do a smaller number of foreclosed homes positively impact a neighborhood’s housing prices (and potentially, its crime rate), but homebuyers benefit from increased builder confidence. Typically, when there are fewer foreclosures and the housing market looks stable, homebuilders produce more homes to keep supply up and keep prices affordable.

It’s the free app that can make getting a mortgage way easier than they said it would be. Click here to download.

Those who buy now in this steadier market may also see quicker increases in home equity to grow their investment. Black Knight confirmed earlier this month that homeowners have reached their highest equity ever recorded with more than $5.8 trillion in available cash.

Despite this good news, mortgage closings dropped for the fourth month in a row as of June 2018. This is mainly because, as the housing forecast improves with fewer foreclosures gumming up the works, housing demand has increased. High demand in many areas, met with low supply, has upped demand so much that many first-time buyers are being priced out. Mortgage rates, while historically low and experiencing some recent declines, are still rising and expected to increase until the end of the year.

Housing shortage may also come back to the builder. Homebuilders have reported having a hard time finding qualified construction workers and may put projects on hold as lumber prices peak.

Lawrence Yun, NAR chief economist, blames the housing shortage, in part, on the healthy economy. As the economy bounces back, interested homebuyers are coming out of the woodwork, and new construction can’t keep up with need. “What is for sale in most areas is going under contract very fast and in many cases, has multiple offers. This dynamic is keeping home price growth elevated, pricing out would-be buyers, and ultimately slowing sales,” Yun said in a recent press release.

But remember, low foreclosure numbers are really good for real estate. Many homebuyers who were waiting to get their ducks in a row are opting to buy sooner than later. Supply might be tight in some parts of the U.S., but for the homebuyers prepared to purchase, continued housing market growth will only increase their investment. Fewer foreclosures make the potential for equity growth even greater.

Economists and housing experts surveyed by Zillow predict that this window of opportunity may be narrowing, estimating that the next recession could start as soon as 2020. “As we close in on the longest economic expansion this country has ever seen, meaningfully higher interest rates should eventually slow the frenetic pace of home value appreciation that we have seen over the past few years, a welcome respite for would-be buyers,” Aaron Terrazas, Zillow senior economist, said. Buyers who can afford to purchase now may avoid the repercussions of what Terrazas calls a “nationwide downturn.”

Keep calm and get prequalified for a mortgage

All over the U.S., homebuyers are snapping up houses before inventory gets sparser. The fastest way to move from offer to closing is by getting prequalified first. Start by finding out how much house you can afford: Download our free app or plug in your info online. Then, use the app to connect to a local loan officer who can get you closed in as few as 10 days.* Buying now instead of later could make it easier for you to find an affordable house in your price range.

*Timeframe not typical. Not all loans will close in 10 days.

For educational purposes only. Please contact a qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.