Wave Of Foreclosures and Bankruptcies Coming – Up 40%
Foreclosures keep increasing throughout the USA. Last year, year over year, foreclosure filings or foreclosure closings were up almost 40%. So in this video, I’m going to talk about “Is there a foreclosure tsunami coming?”, “Is there a wave of foreclosures coming?” And if so, when will it be coming? Let’s look into that. If you have been following the news articles or other news media, you might have noticed there is an increase in chat or news about foreclosure filings and bankruptcy filings.
So if you are thinking about buying or selling, you may be concerned or have some doubts about what’s happening on the market. Should I buy it now? Should I wait? Are there foreclosures coming?
There are so many bankruptcy filings, and what’s going to happen in the next one or two years? Are foreclosures going to go up? Are bankruptcies going to go up? Will that affect home prices and my decision to buy, sell, or even invest in a property? We all know right now that there are tough times in terms of high inflation, a high interest rate, and home prices. So the truth is, even though foreclosure filings are up and bankruptcies are up, inflation is high. Data shows that we are not headed for a housing crisis yet.
So let’s analyze the data and let the numbers do the talking. If you recall, during the pandemic years, in 2000 and 22,021, there were forbearance programs out there, and foreclosure filings and bankruptcy had dropped significantly. Now that the forbearance period is over, we have seen an uptick in foreclosures.
That’s why we are seeing a rise in the filings of foreclosures and the rise in small businesses struggling and filing for bankruptcy. So yes, the data shows that the filings are up, but let’s see what the consequences are, why the filings are up, and what impact that will have on your purchase or buying or investing in a house or selling a house in the next couple of years or next couple of months.
As you can see in this chart, Let’s look at the foreclosure filing activity in the third quarter. In 2023, we are seeing that the foreclosure activity is up; in quarter three, it’s up almost to 100,000 filings. If you look at 2000 and 22,021 during the pandemic years and the forbearance, the PPP, the loan, and everything that was given out, foreclosures dropped in first quarter of 2020, way down to almost zero. But let’s compare that to foreclosure filings. In 2009, it was at 900,000. So yes, in 2023, first quarter, second quarter, and third quarter filings have gone up significantly from 2000 and 22,019, but it’s drastically low than what it was in 2006, 2008, and 2009, where it’s almost ten times more filings than it is currently. Let’s look at the bankruptcies below the pre-pandemic levels.
In 2021, the bankruptcy filings were $462,000 in 2022. It went down further to 380,000, 634 in 2023, we are seeing a rise of almost up to 418,724. That’s an approximate rise or increase of filings by $38,000 from last year, which is very significant. But let’s go back to 2019. The bankruptcies at that time filings were at 773,000 and currently, we’re at 418,000. So we are still well below what they were during the pandemic or pre-pandemic levels.
Yes, it is a concern, but if you look at the rise of foreclosures and bankruptcy filings, it’s significantly low compared to the peak years of 2006, seven, eight, but it is higher than two years ago. But they’re so small that I would not panic on it. As I said earlier, let’s look at the data and let the data guide us in what may happen in the future. Of course, we can never predict what’s happening in the future. Inflation may change, unemployment may change, and house prices may drop. The wars going on right now may affect our economy locally because any global market changes affect our local stats and economy. So it’s a big concern. But let’s look at this chart again. Going back to the number of foreclosures, filings are nearly all-time lows.
Again, if you look at it in 2021, the foreclosure, during the foreclosure moratorium, we had filings at pretty much at zero. If you compare that to today, in 2023, filings are pretty close to 50,000 on a quarterly basis. But if you go back and look at 2009, and 2010, there were over 500,000 filings, and over 600,000 filings. In 2011, they had dropped to 300,000. But if you compare that in today’s market, today’s business, we’re at about 50,000 compared to 500 to 600,000. So we are one 10th of foreclosure filings compared to the big recession that we had in 2008.
So again, these numbers don’t panic anybody, but let’s see what they do in the next few quarters in the next year or so. Do keep in mind that right now we’re almost at an 8% interest rate compared to 3% a few years ago. Our inflation has been 8%, one of the highest in about 20 years or so. Home prices are the highest.
They have been, they’ve been going up since 2011. It has never happened in history where home prices kept rising and rising and rising. Usually, they go up six or seven years and then they drop. That was a cycle. But now we’re at over ten years and the prices are still going up. But the funny thing is, even with this high inflation, high prices, and high-interest rates, homes are selling, and people are buying homes. And not only are they buying homes, but homes are being sold with multiple offers. I’m in an IIM hills and homes are still selling over list price. Homes that are priced right, are in good condition, are at a price, and at market value in today’s market, are getting multiple bids. So it’s kind of confusing to see that. We are seeing an increasing number of foreclosures and bankruptcies and the market is tough right now. The housing market is still active, very active considering these high inflation numbers, high home prices, high interest rates. So something to think about because this momentum still keeps going on. So it’s hard to tell when the wave of foreclosures is coming.
Let’s look at the number of homes for sale on the market and how that is impacting the home market. One of the key factors for a recession or housing market crash is the number of homes for sale. If you can look at this chart, average annual inventory of homes for sale. This is the month’s supply. If you look at right now, and this is according to the National Association of Realtors, of which I’m a member right now, the average inventory or homes for sale inventory is 3.3 months. What that means is if no other homes come on the market, it’ll take all the homes on the market, whether nationwide or in the local area, it’ll take and this is a national number, of course, your local numbers may vary. It may be one month, it could be six months, but the national average is 3.3. That means if no other homes come on the market, it’ll take all the homes 3.3 months to sell. In 2020 it was 3.1.
So the inventory has not changed. In 2008, if you look at it, the number of homes for sale inventory month supply was 10.4. That means if you put a home for sale and no other homes come on the market, it took ten months to sell a house. And that’s if people got loans, et cetera. But right now it’s only taking 3.3 months to sell a house. So as long as the inventory is low, homes are selling. And that’s why you are seeing the multiple bids, the buyers who are paying high rent and the rents have kept going up three to 4% for the last six, seven, eight years, which has never happened as well. So all the people who are paying 2000 a month rent that was paying 1000 a month rent, or all the people who are paying 5000 a month rent, which is pretty normal here in Anaheim Hills, Orange County, which they were paying 3000-month rent, want to buy a house. So there is a lot of activity, there’s a lot of money out there in the economy. So people are buying homes. And because of the shortage of inventory, we are seeing multiple bids.
And that’s why we’re seeing the rise in prices. Because when you have multiple bids, homes sell over the list price. The other big factor affecting the housing shortage is, of course, the reason for the housing shortage. Several reasons. Number one, the Pandemic made a lot of people stay at home. They remodeled their homes. Now they’re not moving. A lot of people in the last two to three years when their interest rates were 2% 15 15-year fixed or 2.5% or 3% or 4%, a lot of the homeowners refinanced their rates.
A lot of them majority of the people refinanced at low low low mortgage rate. So they are not selling their home because they’re saying why should I sell my home and give up a 3% interest rate and buy a home which is much higher now and pay an 8% interest rate? So the refinancing boom has created a shortage because the sellers with low interest rates don’t want to move. The other reason is because the new construction has slowed down a number of units coming on the market.
The demand is still very strong, but they cannot keep up with the demand. Single-family housing units completed. If you look at this chart, it shows that in 2020 we are way below what they were completed in 2005. We are half of what it should be. So when there is demand for homes and there’s a shortage of homes and the new home builders cannot keep up with it, it creates more shortage. Because if I’m thinking of buying a newer home, I’m not going to sell my house and then I’m not going to buy a new house.
So if I don’t sell my house, a buyer who is going to buy my house cannot buy. So it’s a chain reaction. If I can’t buy a new house, I’m not going to sell my house. And if I don’t sell my house, a first-time buyer may not be able to buy my house. So as long as the home inventory remains short and seems like with the new construction slowing down, with the homeowners not moving out of their 3% interest rate lock or 4% lock, this housing inventory shortage is here to stay. Which means that the foreclosures will not pick up pace until inventory picks up pace, they go hand in hand. By the way, thanks again for watching and if you’re still watching, please subscribe to my channel. I come out with videos like this once a week. So here’s another reason why foreclosure may be on hold, or the wave of foreclosure may be on hold. And if there is one reason, and one reason only why there may not be a wave of foreclosures is because of what we call equity. Equity? Yes. A lot of the homes have a lot of equity. As you know, in the last ten years. As I mentioned, prices have been going up since the last 1112 years. Up and up and up and up and up. If you bought a home two years ago, it’s probably up 15% to 20% on average. Of course, some areas have dropped, but overall equity has gone up not only in two years, but they’ve gone up significantly.
Here’s a chart that shows that Americans are sitting on tremendous equity. And this is one reason why it’ll stop foreclosures from coming. If you look at it, 38.7% of all the homes are free and clear. So those homes are out of foreclosure. Because if I have to sell, if I lose a job, I got plenty of equity to sell a home. The second section here, it shows that 30% of all mortgage homes have more than 50% equity. So let’s say I refinanced and I bought a house four or five years ago, or even seven years ago, I have 50% equity I’m sitting on. So if I lose my job, don’t work for a year or maybe two years, and then sell my house, I still have equity. So the banks cannot foreclose on my property because I have so much equity that even by losing a job and not paying for one year or two years, I have enough equity to cover the home. So when I sell my home, I walk out free and clear or maybe with some money.
And then the third thing about equity is that there’s only 31.3% of the homes out there with mortgages have less than 50% equity. They may have 30% equity or 20% equity. So as you can see, only one-third of homes have less than 50% equity. That means of all the homes out there, they have more than 50% equity and 30% have zero equity in there, which is going to reduce the amount of foreclosures. If you recall, in 2004, 2005, 2006, and 2007 there were a lot of toxic loans. If you had a driver’s license, they gave you a loan. A lot of people refinance where they were not supposed to refinance.
The other thing is, a lot of them who refinance pulled money out, and took out equity. What did they do with the equity? They remodeled their home. They bought another home. They bought boats, they bought horses, they spent money, they threw away money. So when the job recession came, people had no equity. They had to let go of their homes. Right now, it’s different. People refinance did not pull out equity. They were smart. They learned a lesson. So there is tons of equity sitting there. So, as you can see with all this data, to me, I don’t see a wave of foreclosures coming. There may be waves of foreclosures up and down, but as far as a wave of foreclosure like in 2008, it is very unlikely. But then again, we never know what the global economy will impact the local economy. Let’s see how the inflation keeps going up. Let’s see if the interest rate drops below 6% in the next few, four, five, or six months and see what happens.