Foreclosures Are Rising — But This Isn’t 2008 All Over Again

[Marc Winter]

The latest foreclosure numbers are worth paying attention to, but be careful about jumping straight to panic mode.

According to ATTOM, a real estate data company that tracks foreclosure filings and property records, foreclosure filings were up 14% year-over-year in May, with 40,355 properties receiving some type of filing.

That tells us there is real stress building in certain parts of the housing market, but there's another part of the story that matters too.

Foreclosure filings were actually down 5% from April. And if you look at the year-over-year pace, it appears to be cooling--March was up 28%, April was up 18%, and May came in at 14%.

So yes, foreclosures are up from last year, but no, this doesn't look like a runaway foreclosure wave at this point. Looks to me like a market where the cost of holding real estate is growing.

Homeowners are not just dealing with a mortgage payment anymore. They're carrying higher insurance, higher property taxes, higher repair costs, higher maintenance costs, and a general cost of living that has squeezed a lot of household budgets.

For those who were already close to the edge, that combination do real damage.

Florida is a clear example  

between insurance pressure, climate-related costs, and affordability problems, it is not surprising to see that state showing up as one of the major pain points in foreclosures.

Some metros are feeling it more than others too, which is why I think this is a local story as much as a national one. That's an important distinction for investors—it’s not the same setup we saw before 2008. Back then, a lot of the problem came from bad lending, loose underwriting, and homeowners being upside down with little or no equity.

Today, many owners still have equity, and the problem is often different: they may have equity on paper, but the monthly cost of keeping the property is becoming too much.

That changes how investors should look at the situation.

If someone is waiting for a flood of bank-owned properties to hit the market, that may not be the right expectation right now. Completed repossessions were reportedly down month-over-month, which suggests the better opportunity may be showing up earlier in the process.

For example, look at pre-foreclosure situations, owners who still have equity, and people who may need a clean way out before things get worse.

But I want to be very clear about this part: distress is not just a “lead source.” There is a real person on the other side of that file.

If an investor is going to work in that space, it needs to be done carefully, professionally, and ethically. Sometimes there may be a win-win solution. Sometimes there may not be. But the homeowner’s situation deserves respect.

For buyers and investors, the bigger takeaway is simple enough: watch your local data. Don’t assume every market is moving the same way. Pay careful attention to taxes and insurance, because those costs can change the math quickly. And if you are buying rentals, make sure your deal still works after the real carrying costs are included.

The foreclosure numbers are talking, but I don’t think they are telling us, “Here comes 2008 again.” I think they are saying the cost of ownership is getting heavier, and many households are starting to feel the weight.

That's where I feel the pain is, and for disciplined investors, that may also be where some careful, ethical opportunity exists.