Foreclosures Like It's 2007 and 2008? | Real Estate 2022

May 20, 2022

Foreclosures Like It's 2007 and 2008? | Real Estate 2022

Let’s talk about foreclosures and where we are with the housing market.

In the article I will link some interactive maps to show you what areas are supposedly overvalued and dive into some data for foreclosures to show you where we’re at compared to where we were back in 2007 and 2008.

But first, let’s talk a little bit about supply and demand.

What we’re seeing is that affordability is becoming a challenge for some people. It’s been like that as the prices have skyrocketed over the last two years. The thing is, wages don’t seem to be keeping up.

Overvalued Market

In this article by Fortune titled “The housing market resembles 2007—these 3 interactives show if your local home prices are ‘overvalued,” they say:

“Over the past 12 months, U.S. home prices are up 19.8% while private sector wages are up just 4.8%,” according to Fortune.

That’s a concern because according to the article, “The typical American household would have to spend 32% of its monthly income to make a mortgage payment on the average-price U.S. home, according to Black Knight, a mortgage technology and data provider. That's the highest level since 2006. For perspective, that figure averaged 19.9% during the 2010s.”

There are three companies that assess if regional home prices are “overvalued” relative to historically supported economic fundamentals, but these three companies define “overvalued” a bit differently.

CoreLogic’s data shows that for me, (I’m between LA and Ventura, CA) the housing markets near me are normal (LA) and overvalued (Ventura).

If you examine the overvalued areas presented by CoreLogic, these are the areas that had a massive influx of people moving in, which consequently pushed inflation and prices up.

“The real estate research firm finds that 65% of housing markets are "overvalued" (i.e., home prices there are above what local incomes can support),” Fortune says, regarding CoreLogic’s report. “To run its analysis, CoreLogic used sales price data from February. Once sales data comes out for May, the picture should be worse.”

The second assessment focused on the 100 largest housing markets in the US.

“Each month, researchers at the Real Estate Initiative at Florida Atlantic University calculate how overpriced or underpriced home prices are in America's 100 largest housing markets,” according to the article.

They had more groups with smaller ranges. Some of the overvalued areas on this map are Boise, Idaho (75.18%), Riverside, the lower-priced areas in California (30.76%), and Tucson, Phoenix, and some areas in Florida, which are also overvalued.

What these areas had in common was that they had lower home prices, but after people start moving into these cheaper markets, the house prices are pushed up, with multiple offers and cash offers.

This data concerns others because the trend looks similar to what happened before the 2007 housing bubble.

According to Fortune, “Just two years ago, Florida Atlantic University's data found 0% of housing markets were overpriced by at least 30%. The last time the housing market was this "overpriced" was just prior to the implosion of the 2000s housing bubble. Back in March 2007, 40% of large markets were overpriced by at least 30%.”

Moody’s is the third company presenting its assessment in this article, and its interactive map matches the first two.

“Mark Zandi, chief economist of Moody's Analytics, won't call the 2022 housing market a housing bubble. Calling it that would require both speculation-driven price growth and home price overvaluation. While Zandi doesn't think speculation is driving up prices, he does say we meet one housing bubble requirement: Home prices are greatly "overvalued." Indeed, Moody's latest analysis finds a housing market that is looking more and more like 2007,” says the article.

With all this data, Fortune reports what pros predict, “Over the coming year, Zandi tells Fortune he thinks U.S. home prices will be flat. The economic shock caused by spiking mortgage rates should be enough to cool off the historically hot housing market. However, he says the most "overvalued" regional housing markets could see home price dips of around 5% to 10%.”


The biggest concern in the midst of all this is: “Does that mean we are going into foreclosures?”

Here are four things why I think it isn’t an issue:

1. Fewer homeowners are in trouble

There were a lot of concerns, thinking that all those under the forbearance program will go into foreclosures, but the data shows otherwise. 

Only 18.4% were still in trouble after exiting the forbearance program. The remaining are paid in full or were workouts or repayment plans.

2. Homeowner equity

In Q4 of 2021, the national average is $55,300. If you are concerned about the 18% still in trouble after exiting the forbearance program, they mostly have equity. Why would they need to foreclose, if they can sell the home? They will probably even reach a break even point.

The market is probably healthier right now as far as equity is concerned.

3. The data records show there are fewer foreclosures.

4. Not enough homes on the market.

Investopedia reports the data by NAR saying, “The inventory of unsold existing homes rose by 11.8% to 950,000, equal to 2.0 months of sales at the pace set in March.”

The average is 6 months. We are so far behind in inventory that even if something does come up, it might even be helpful. Because there is a large demand, all of those frustrations we see from the first-time home buyers that are looking for real estate and those getting outbid by investors, they’ll finally be able to buy.

The concern though is wages.

Those are some important things to look at as you start making decisions to either buy or sell.

Personally, I don’t see a crash happening, I do see it all evening out in the next two years. It is still a healthy market.