Foreclosures May Be Benign Statistically, But Stay Tuned
The massively, unrepentantly visible hand of the Federal government in the wake of the novel coronavirus pandemic – its lingering stress and expected hangover impact – aims to neutralize two economic enemies: disinflation and deflation.
Take an economy already showing signs of life, local jurisdictions loosening the clamps of more normalized business activity, and a blitz of newly legislated rescue, support, and stabilization in the form of a $1.9 trillion stimulus, and you're more likely to raise spectre of inflation.
That's a risk arguably worth taking to ward off both the direct downside of property values losing momentum, or in a worse-case scenario, heading south.
Nary an expert out there would give credence to even a remote potential for deflation. That's in part do to the all-out all-in support for people with mortgages, which kicked in with the CARES Act a year ago, and is getting a fresh infusion with the latest stimulus.
Also, it's well-noted that the post-Great Recession class of purchase mortgages were underwritten on far more risk-averse terms, more likely to weather bumps, chops, and even some heavy turbulence.
Wall Street Journal staffer Nicole Friedman notes in a recent piece, "The Pandemic Ignited a Housing Boom—but It’s Different From the Last One," that widespread distress, even as Uncle Sam's foreclosure moratorium, loan forbearance, and term extension plans may sunset.
Friedman writes this time's different, dangerous words to any investor, but an assertion many of them believe.
In the mid-2000s, loose mortgage-lending standards enabled borrowers with poor credit histories to purchase homes beyond their means, sometimes with mortgages that required low payments in the early years of the loan. Too much new construction led to an oversupply of houses. Financial firms packaged these risky mortgages as securities and sold them to investors. When more homeowners started defaulting on their mortgages, lenders suffered large losses and the entire financial system froze up.
Many homeowners paid a big price. Between 2006 and 2014, about 9.3 million households went through foreclosure, gave up their home to a lender or sold in a distressed sale, according to a 2015 estimate from the National Association of Realtors.
The current housing boom is far more stable than the last one and poses fewer systemic risks, economists say. A downside: There are more barriers to entry, and it’s more difficult for buyers who aren’t already homeowners to make that first purchase.
Still, unless you object, we'll keep half an eye on foreclosure activity by tapping in from time to time with folks like Rick Sharga, executive vice president of RealtyTrac, an ATTOM Data Solutions company. Sharga and his team have learned--across the past 15-plus years--to neither over- nor understate the relative meaning and importance of constantly-tracked foreclosure activity on both a statewide and metro-area detail.
Recently, the ATTOM Data team called attention to a month-on-month sequential "uptick" in foreclosure filing activity--default notices, scheduled auctions, and bank repossessions. For framing context, the figure from February 2021 was 77% lower than the same month in 2020.
The ATTOM report notes that foreclosure starts for February 2021 rose sequentially in 29 states. Looking at foreclosure starts activity through various mesures, as shown in the interactive charts above, begins to capture how far across the country the creep of foreclosure is spreading. Among ATTOM's findings:
States that had at least 100 foreclosure starts in February 2021 and saw the greatest monthly increase in foreclosure starts included: Utah (up 230 percent); North Carolina (up 73 percent); Michigan (up 60 percent); Georgia (up 58 percent); and Mississippi (up 54 percent).
In looking more granular, those counties that had the greatest number of foreclosure starts in February 2021 included: Los Angeles County, CA (234 foreclosure starts); Utah County, UT (224 foreclosure starts); Cook County, IL (154 foreclosure starts); Harris County, TX (97 foreclosure starts); and Riverside County, CA (74 foreclosure starts).