Home Foreclosures Rise in May Amid Ongoing Cost-of-Living Crisis

Home foreclosures increased again in May as Americans continue to grapple with the ongoing cost-of-living crisis, according to a new report by real estate data provider ATTOM. The report found that 32,621 properties had foreclosure filings in May, including default notices, scheduled auctions, and bank repossessions. This marks a 3% increase from the previous year, although it is down 7% from the same time last year.

Foreclosure Trends and Regional Disparities

"May’s foreclosure activity highlights nuanced shifts in the housing market," said ATTOM CEO Rob Barber. "While we observed a slight increase in foreclosure starts, the decline in completed foreclosures indicates resilience in certain areas."

Nationwide, about one in every 4,320 housing units had a foreclosure filing in May. However, some states experienced much higher rates:

• New Jersey: The highest rate, with one in every 1,939 homes receiving a foreclosure notice, more than double the national average.

• Delaware: Filings for every 2,595 homes.

• Connecticut: One for every 2,600 homes.

• Florida: One for every 2,638 homes.

Factors Contributing to Increased Foreclosures

Several factors are contributing to the rise in foreclosures:

• High Home Prices: The median home price in the U.S. has soared, making homeownership increasingly unattainable for many.

• Steep Mortgage Rates: Rising mortgage rates have significantly increased the cost of borrowing, pushing more homeowners into financial distress.

• Property Taxes and Rising Insurance Premiums: These additional costs are straining household budgets further.

Housing Affordability Crisis

Housing affordability is at its worst in decades due to the spike in home prices and mortgage rates. According to Zillow, the typical salary required for homeownership has soared to $106,500, a 61% increase from $59,000 just four years ago.

The affordability crisis stems from:

• Years of Underbuilding: A prolonged period of underbuilding has led to a significant shortage of homes. This was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.

• Limited Housing Supply: Realtor.com reported that available home supply is down 34.3% from pre-pandemic levels, further limiting options for buyers.

• Golden Handcuff Effect: Higher mortgage rates have created a scenario where sellers, who locked in record-low rates during the pandemic, are reluctant to sell, further restricting supply.

Economic Predictions and Mortgage Rates

Economists predict that mortgage rates will remain elevated in 2024 and will only start to fall once the Federal Reserve begins cutting rates. Even then, rates are unlikely to return to the pandemic lows. Investors are growing skeptical about the likelihood of a Fed rate hike this year, given the series of hotter-than-expected inflation reports at the beginning of the year.

• Freddie Mac: Reported that the average rate on a 30-year loan fell to 6.95%, down from a peak of 7.79% in the fall of 2023, but still significantly higher than the 3% rates seen during the pandemic.

• Zillow Survey: Found that most homeowners are nearly twice as willing to sell their home if their mortgage rate is 5% or higher. Currently, about 80% of mortgage holders have a rate below 5%.

Impact on Buyers and Sellers

The combination of high prices and high mortgage rates is particularly challenging for first-time buyers. With the typical salary required to purchase a home rising dramatically, many potential buyers are being priced out of the market. This also affects sellers, who are finding fewer willing and able buyers.

Broader Economic Context

• Inflation: Continues to be a significant factor, affecting everything from construction materials to daily living expenses. While inflation has moderated from its peak, it remains a challenge.

• GDP Growth: Lower than expected, contributing to economic uncertainty and affecting consumer confidence.

Future Implications

The rise in foreclosures and the broader housing affordability crisis have several implications:

• Consumer Behavior: As affordability continues to decline, more people may opt for renting over buying, further increasing demand (and potentially prices) in the rental market.

• Market Adjustments: The housing market may see adjustments in pricing strategies, with sellers potentially needing to lower prices to attract buyers.

• Policy Responses: There may be increased pressure on policymakers to address housing affordability through measures such as increasing housing supply, providing subsidies or incentives for first-time buyers, or implementing rent control in high-demand areas.

Conclusion

The rise in foreclosures highlights the ongoing struggles faced by many Americans due to the cost-of-living crisis. With mortgage rates remaining high and housing affordability at record lows, the real estate market continues to face significant challenges. The combination of limited housing supply, elevated mortgage rates, and economic uncertainty underscores the complex dynamics at play in today's housing market. Addressing these issues will require coordinated efforts from policymakers, industry stakeholders, and community organizations to ensure sustainable and affordable housing solutions for all.