Foreclosure Insights

Foreclosure activity remained relatively stable prior to the COVID-19 pandemic and has continued to exhibit resilience even since. The period following the pandemic saw remarkably low foreclosure levels, which have not yet reverted to the pre-pandemic norms, despite the existence of foreclosure prevention strategies.

It’s important to note the dangers associated with late-cycle lending across economic cycles in the housing sector. Unlike the situation leading up to the 2008 recession, where housing credit began deteriorating well before the economic crash, the current housing credit landscape appears significantly more stable. Comparatively, the health of housing credit is stronger when viewed alongside credit card, auto loan, and student loan debts.

FICO Score Dynamics

Since the implementation of the Qualified Mortgage (QM) laws in 2010, FICO scores related to housing have shown significant improvement. A considerable number of homeowners are opting for 30-year fixed-rate loans, which help stabilize their financial obligations. With rising wages over the past fourteen years, many homeowners have maintained a solid cash flow.

The avoidance of recession in the U.S. since 2010—excluding the COVID-19 impact—can be attributed in part to the QM mortgage framework and the bankruptcy reform legislation enacted in 2005. These measures were pivotal in curbing rapid household credit expansion, enabling consumers to avoid excessive debt accumulation. They may be considered unsung contributors to the stability of the U.S. economy in recent years.

Conclusion

While signs of credit strain are emerging in sectors such as credit cards, auto loans, and student loans, homeowners seem to be maintaining a favorable financial standing on paper. However, it is anticipated that renter households could face more significant challenges during the next economic downturn. Homeowners not only generally possess high credit scores but also hold considerable equity in their properties.

Continuous monitoring of housing credit data is essential to stay informed of possible stress points. Previous crises saw close to 15 million loans in delinquency, foreshadowing widespread foreclosures and considerable declines in home equity. Currently, many homeowners benefit from strong equity positions, and nearly 40% of U.S. homes are owned outright without mortgages.

The supply of new listings is aligning with pre-pandemic trends, averaging weekly figures of 80,000 to 110,000—contrasting sharply with 250,000 to 400,000 listings observed during the housing bubble years. Given the recovery of credit markets, the data presently offers no indications of distress.