One Key Indicator That We're Not Headed Toward a Foreclosure Crisis

While foreclosure filings have been increasing, this spike might remind you of the 2008 housing crash. Let’s take a closer look at the connection and what the current data tells us.

Although foreclosure filings have gone up, they remain far from crisis levels—and they’re not heading that way. Here’s why.

The Role of Serious Delinquencies

To begin, let's look at serious delinquencies—loans where homeowners are more than 90 days behind on payments.

While these delinquencies have seen a slight rise, data from the New York Fed indicates they remain relatively low, nowhere near the levels observed during the housing market collapse (see graph below):

Currently, just 1% of mortgages are seriously delinquent—about 1 in 100. During the crash, that number was nearly 9%, or 1 in 11. This is a significant difference.

It’s also important to note that not all delinquencies result in foreclosure filings. Many homeowners who fall behind on payments work out repayment plans with their lenders, as banks also want to avoid a flood of foreclosures.

Foreclosures Are Even Less Common Than Delinquencies

Foreclosure filings are even rarer than delinquencies. According to ATTOM, only 0.3% of homes are currently in foreclosure. Additionally, not all of those cases will result in completed foreclosures. In essence, this situation is more of a ripple than a wave.

Why Aren’t Foreclosures More Widespread If People Are Falling Behind?

You may wonder why we’re not seeing more foreclosures despite some people facing financial difficulties. The answer lies in priorities.

When financial strain hits, many households prioritize their mortgage payments over other debts because losing their home is their biggest fear.

Data from the New York Fed shows a rise in delinquencies for credit cards and auto loans, but mortgage delinquencies have not surged at the same rate. This suggests that, while people may fall behind on other payments, they’re determined to keep their homes—especially if they have significant equity.

Home Equity Makes a Big Difference

Many homeowners have built substantial equity in recent years, which provides them with more options.

“Distressed homeowners... often still have equity in their homes. They can sell and avoid foreclosure, walking away with some of that equity.”

This marks a major shift from 2008, when many homeowners owed more than their homes were worth and couldn’t sell. Today, selling is a viable option for many. Even if equity doesn’t fully cover the mortgage, homeowners are encouraged to work with their loan servicers early to explore alternatives to foreclosure.

Conclusion

Yes, foreclosure filings are on the rise, but they’re nowhere near the levels seen during the 2008 crash. Today, homeowners are in a far stronger position, with more equity and more options than they had back then.

Instead of panicking over the headlines, it's essential to keep the situation in perspective. Based on the data, this is not a repeat of 2008.