People keep asking me if the housing market is about to break. Some of the national numbers look scary right now. The most important one says the opposite, and it changes where an investor should be looking for deals.

The scary-looking stuff

• Foreclosures are climbing. About 303,000 U.S. homes were in active foreclosure in September, according to ICE (Intercontinental Exchange, the company that tracks mortgage data). That's up 37% from about 221,000 a year earlier, and the highest since early 2019.

• Builders are nervous. The NAHB/Wells Fargo Housing Market Index, the monthly survey of how homebuilders feel about the market, just dropped to 29. That's the lowest since 2012. Anything under 50 means more builders feel bad than good. A record 43% of builders are cutting prices, and 65% are offering incentives like paying closing costs or buying down your rate. That's 19 months in a row above 60%.

• Buyers are sitting on their hands. Mortgage purchase applications are down about 60% from the pandemic peak, per Redfin. That's back near 1995 levels, lower than at any point in the 2008 to 2012 crash. With rates above 7%, pending sales are near record lows, and a record 14% of September deals fell apart before closing.

The number that matters most

Only 2.2% of homes with a mortgage are underwater, per Goldman Sachs. Underwater means you owe more on the house than it's worth. In 2008, it was roughly 1 in 4.

That's the whole difference.

In 2008, people who got in trouble couldn't sell their way out, because they owed more than the house was worth. So the keys went back to the bank, the bank dumped the house, the house down the street got cheaper, and it snowballed. Today, almost everybody has equity. If you hit a rough patch, you can usually sell, pay off the loan and walk away with a check.

So this isn't 2008. It's a slow market where the buyer has leverage.

What that means if you're buying

• A rising foreclosure count today turns into bank-owned listings months from now. The supply is coming. Get your financing lined up before it does, not the week the listing hits.

• Because most of these owners have equity, they have options early that they don't have late, like selling on their own terms instead of losing it at auction. So a lot of this wave is going to look like motivated sellers before it ever looks like courthouse steps.

• Builders are some of the most motivated sellers out there right now. If two out of three are offering something, ask what yours will throw in before you sign anything. And bring your own agent. The builder's salesperson works for the builder.

• On resale, ask for closing costs, a rate buydown, repairs. Then ask again.

What it looks like in Louisville right now

Jefferson County, straight from our MLS:

• 280 houses cut their price in the last week alone.

• 80 brand-new construction homes have already cut their price, from $199,900 up to $1.595 million.

• 65 houses with four or more bedrooms under $200,000, starting at $53,000. More bedrooms usually means more rent.

• 32 properties with two units and up hit the market in the last 30 days, from a $69,900 fourplex up to $725,000.

And if you're selling a rental into this: price it right on day one and get ahead of the inspection. With 14% of deals falling apart, a pre-listing inspection (paying an inspector before you list, so there are no surprises later) is cheap insurance.

Question for the foreclosure folks: in your market, are those filings actually turning into bank-owned inventory yet, or are owners with equity selling their way out before it gets that far?