American consumers are tapped out. Credit card debt is over 30% higher than it was just two years ago. Balances on non-housing loans have hit a whopping $4.8 trillion, and the rate of newly serious delinquent credit card debt has risen by about 90% since Q1 2022. The resumption of student loans in October 2023 is putting additional pressure on millions of homeowners at a time when layoffs are up by almost 200%. Given these facts, it’s not surprising that home foreclosures are also on the rise. Leading real estate data company ATTOM reports that home foreclosures are up 34% nationwide from last year and up by 28% since the second quarter of 2023. As of mid-October 2023, there were 124,539 foreclosure filings on record.
Rising inflation rates have taken a huge toll on consumers in the last few years. While the 2023 inflation rate of 3.2% is far lower than 2022’s 6.5% inflation rate, it’s still higher than the FED’s ideal 2% interest rate. What’s more, the historic rise in mortgage loan interest rates has crashed the residential real estate market. Pending home sales are at their lowest level in 20 years and buyers are currently favoring newly-built homes over homes with existing homeowners. This can make it difficult if not impossible for a homeowner who can no longer afford to make high mortgage payments to sell the home before default.
The rise in foreclosure filings hasn’t affected all states equally. Texas, Florida, and California currently have the highest number of foreclosure starts. The three cities with the highest foreclosure rates are Cleveland, Ohio; Miami – Fort Lauderdale, Florida; and Riverside, California. The states with the highest foreclosure rates are Delaware, Ohio, and New Jersey. Some cities are seeing a decrease in the foreclosure rate, including Salt Lake City, Utah; Chicago, Illinois; Kansas City, Missouri; and Columbus, Ohio. Foreclosures in Washington, DC were 30% lower in October 2023 than in the previous month. However, rising foreclosure rates remain a nationwide problem and there is a good chance that the foreclosure rate will rise even higher in 2024. Experts point out that the rate will likely decline in December as the holiday season impacts the filing process; however, this would only lead to a spike in foreclosure filings in the early months of 2024.
The residential real estate market is undoubtedly in a difficult place. While home values are on the rise, leading to a jump in home equity for long-term homeowners, the foreclosure rate is also high and will likely keep rising in the coming year. While no-one can predict where the residential real estate market is headed with 100% certainty, the odds are that foreclosures will continue to rise in the coming year, putting a strain not just on defaulting homeowners but also banks and other lenders who are left with the challenge of managing multiple properties at a time when home sales are at an all-time low.
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