When individual homeowners lose their homes by falling into foreclosure because they cannot pay their mortgages, it can be a personal tragedy and a drag on the economy as a whole. Foreclosures have been down recently, but what could cause foreclosure rates to rise in 2025?
- What Could Cause Foreclosure Rates To Rise In 2025?
- See All 1 Items
Those who have studied real estate for a long time remember the Great Recession's impact on homeownership well. The Federal Reserve Bank of Chicago estimated that approximately 3.8 million foreclosures occurred between 2007 and 2010. When the COVID-19 pandemic struck, it looked like many people out of work might lose their homes to foreclosure. However, the widespread use of forbearance programs, the national foreclosure moratorium created by the CARES Act and local and state programs helped prevent a larger crisis.
ATTOM says the foreclosure rate hit an annual high of 2.23% of all homes in 2021. In 2023, the rate was just 0.26%. There were 357,062 foreclosure filings in 2023. Attom’s data for the third quarter of 2024 showed 87,108 U.S. properties with foreclosure filings during the third quarter of 2024. This was down 2% from the last quarter and down 13% year-over-year. The number of foreclosure starts fell by 10%.
Overall, the numbers are positive and are expected to stay that way. Rob Barber, CEO of ATTOM, anticipates that foreclosure levels will stay relatively low but cautions that there could be localized increases in some areas.
What Could Cause Foreclosure Rates To Rise In 2025?
An unlikely but still possible cause of foreclosure increases in 2025 would be a sudden economic shock. While it appears that we may have avoided a recession for the time being, if widespread unemployment rose dramatically, inflation became unmanageable or there was a major geopolitical incident, the repercussions could include an increase in the rate of foreclosures. It’s reasonable to assume that if there were another major event like the pandemic, the federal government might put similar programs in place to stop the economic fallout.
A confluence of factors drove the rise of foreclosures during the Great Recession, the most important of which was the rise of subprime mortgages. While subprime mortgages are a component of any mortgage market, the increase in risky mortgages for borrowers with a high rate of default destabilized the market. When prices started dropping, these borrowers had limited home equity.
That is not the case today. According to Federal Reserve data, homeowners have a record-high amount of equity in their homes, over $35 trillion. That equity means that homeowners have options if something does happen. They can refinance or obtain a home-equity loan or line of credit. They can even sell part of their home equity to an investor in return for a lump sum by using a home equity agreement or home equity investment.
The more likely scenario for 2025 may be pockets of foreclosure activity. ATTOM’s data showed the highest foreclosure rates in Nevada, Illinois and Florida. The highest foreclosure rate in the country for areas with over 200,000 residents was in Lakeland, FL, with one in 610 housing units, followed by Provo, UT, with one in 647. Other areas in the top five included Macon, GA, Columbia, SC and Atlantic City, NJ.
One looming question is whether recent natural disasters, including hurricanes and wildfires, will also cause more people to lose their homes. Luckily, there are forbearance plans and mortgage assistance programs for many people in affected communities. There may still be some long-term repercussions from the economic fallout of these disasters, but it may not lift foreclosure rates above historical levels.
Overall, if foreclosure rates rise in 2025, it won’t be at the start of the year. Home prices are still near record highs in many markets and that situation will take a while to change. In parts of the country, including Florida, the number of homes for sale has risen but is mostly below pre-pandemic levels. However, if those homes stay on the market long enough to cause prices to drop precipitously, that could cause stress for some homeowners.
The low foreclosure rate is a positive indicator of a relatively strong real estate market. Signs continue to point to the current trend of foreclosure rates remaining below historical levels, which is good news for homeowners but perhaps bad news for anyone who hoped to purchase a foreclosure as an investment property.