Foreclosure rates have been rising since 2020. However, the current jump in foreclosure filings in the first quarter of 2023 is still alarming. A whopping 95,712 properties in the United States had foreclosure filings in the first three months of the year. What’s more, over 36,000 of these filings were from March 2023 alone, indicating that the rate will likely keep rising in the coming months. It is up 6% from Q4 2022 while repossessions are up 8% from this same time period.
The rise in foreclosure rates is not a surprise to most financial institutions. Experts predicted that there would be a jump in foreclosure after eviction moratoriums ended. Furthermore, data shows that many homeowners facing foreclosure had longstanding financial problems. The ban on housing foreclosures in 2020 only delayed the inevitable rather than prevent it. At the same time, rising inflation has also contributed to the rising foreclosure rate. As of March 2023, it stands at 5%, slightly lower than the 2022 high of 6.5% but still much higher than pre-pandemic levels. Job losses have also played a role and will continue to do so for the foreseeable future. Current stats show that there were over 8 million job losers in Q1 2023 and the Bank of America expects the unemployment rate to rise to 5.5% by the end of the year.
Analyzing State and Local Data
While foreclosures are undoubtedly on the rise overall, it is important to note that they are rising faster in some areas than others. California saw the highest number of foreclosures in Q1 2023, followed by Texas, Florida, New York, and Illinois. However, as these are heavily populated states, the high number of foreclosures is not an accurate indicator of the real estate market in these areas. To see how a particular state’s market is performing, it is important to see the foreclosure rate per housing unit in each state. Illinois leads the pack, as one in every 762 households in the state has a foreclosure filing. Delaware comes in second place, followed by New Jersey, Maryland, and Nevada. States with the highest repossession rate are Michigan, Illinois, California, Pennsylvania, and New York.
Metro areas with the most foreclosure starts are New York, Chicago, Philadelphia, Houston, LA, and Miami-Fort Lauderdale. The top two metro areas, New York and Chicago, have a far higher rate than the following three areas. Cities with the highest foreclosure rate per housing unit are Fayetteville, NC; Cleveland, Ohio; Atlantic City, New Jersey; Columbia, South Carolina; and Bakersfield, California.
Zombie foreclosures are up 5.6% from the last quarter. These pose huge problems for lenders. Homes that are abandoned at the start of the foreclosure process typically need extensive repairs and maintenance. Some lenders opt to pause the foreclosure process entirely to avoid having to take responsibility for property taxes and other expenses. Others go through the foreclose process but then sell the home at a loss. States with the highest increase in zombie properties in Q1 2023 are Iowa, Arizona, Oklahoma, Maryland, and Massachusetts. States with cities that have the highest number of homes in zombie status are New York, Ohio, and Illinois.
Will Foreclosures Keep Rising in 2023?
Experts note that broad economic conditions this year will determine if the foreclosure rate will keep rising. Factors that could lead to a spike in foreclosures include a continued increase in auto and consumer credit card debt, rising unemployment rates, and a recession. Many are also watching for the end of the CARES forbearance, which is expected to end on June 20, 2023. There are 24 million borrowers in the program, which shields individuals from foreclosure if they suffered financial hardship due to COVID. If borrowers in this program are unable to start making regular payments, there will almost certainly be a rise in foreclosures in the third and fourth quarters of the year.
While some real estate markets are performing better than others, statistics show that foreclosure and repressions rates are rising throughout the United States. Unfortunately, this spike could not come at a worse time for lenders. While home sales jumped 14.5% from January to February 2023, they are down over 22% compared to a year ago. Real estate lenders should be prepared for multiple challenges ahead as defaults rise even as homes lose value and take longer to sell than in previous years.
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