Housing Beat: Why Are Foreclosure Filings Up 129% From Last Year?

The latest data from the housing market shows a new spike in foreclosure filings, a new wave of lender uneasiness, a new record in luxury homes and a new uptick in mortgage rates.

Foreclosures-A-Poppin’: The February U.S. Foreclosure Market Report published by ATTOM found 25,833 properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — during February, an 11% increase from January and a 129% hemorrhage from one year earlier.

Rick Sharga, executive vice president at RealtyTrac, cautioned that the dramatic increase from one year ago is a reflection of the acknowledgment that today’s housing market is operating under different government-imposed rules.

“This isn't an indication of economic turmoil, or of weakness in the housing market,” Sharga said. “It's simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially-impacted homeowners from defaulting."

Indeed, the absence of government protection is reflected in the double- and triple-digit year-over-year statistics. During February, lenders repossessed 2,634 properties through completed foreclosures, up 70% from last year, while 16,545 properties were the subject of foreclosure starts, up 176% from 12 months before.

The states with the greatest numbers of foreclosures starts in February included California (1,868), Florida (1,527) and Texas (1,488), while Chicago led the major metro areas with 1,075 foreclosure starts, followed by New York City (793) and Los Angeles (530).

Lender Pessimism: The newly-published first quarter 2022 Mortgage Lender Sentiment Survey from Fannie Mae's FNMA found 75% of mortgage lenders believing their profit margins will decrease in the next three months -- in the previous quarter, that percentage was 65% -- while 17% felt profits will remain the same and 9% predicted profits will increase.

The key causes for a potential profit decline, according to the lender, was competition from other lenders, market trend changes and consumer demand. Most lenders were also uncomfortable about the state of the economy, with 59% voicing concern that the economy is on the wrong track, compared to 29% in the first quarter of 2021.

"For the sixth consecutive quarter, mortgage lenders expressed bearishness about near-term profit margin expectations amid headwinds from declining refinance activity, slower purchase mortgage demand growth, and narrowing spreads," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "For consumers, rising interest rates, lack of supply, and strong home price appreciation have reduced refinance activity and further constrained home purchase affordability, which, of course, is dampening lenders' expectations of future business activity.

“Numerous uncertainties, including heightened inflation and the Fed's monetary policy reaction, which must now also account for the inflationary impact of Russia's war on Ukraine, suggest increased market volatility, but the general underlying, upward rate trend aligns with lenders' expectations," Duncan added.

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Millionaires’ Row: Separately, Redfin RDFN reported a record 8.2% of U.S. homes — roughly 6 million properties — were valued at $1 million or more in February, up from 4.8% (3.5 million) in February 2020, just before the coronavirus was declared a pandemic.

The Bay Area saw the greatest increase in luxury properties, with nearly nine out of 10 properties in both San Francisco and San Jose falling into the $1 million-plus category. The greatest display of newfound housing wealth was in Anaheim, California, where the share of homes worth at least $1 million nearly doubled to 55%.

But while home values were on the rise, the overall housing inventory continued to decline. Redfin reported that during the four weeks ending Feb. 27, the number of homes for sale plummeted 50% from two years earlier to an all-time low of 456,000. This was cited in fueling the 33% rise in the median home-sale price, which reached a new peak of $363,975.

“The surge in housing values has turned many homeowners into millionaires, but has pushed homeownership out of reach for a lot of other Americans,” said Redfin Deputy Chief Economist Taylor Marr. “Incomes have increased, but not as fast as home prices, which means many people are stuck renting or have to move somewhere more affordable if they want to buy a home.”

Mortgage Activity: Freddie Mac FMCC announced the 30-year fixed-rate mortgage averaged 3.85% for the week ending March 10, up from last week when it averaged 3.76%. The 15-year fixed-rate mortgage averaged 3.09%, up from last week’s 3.01%, and the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.97%, compared to last week when it averaged 2.91%.

“Following two weeks of declines, mortgage rates rose this week as U.S. Treasury yields increased,” said Sam Khater, Freddie Mac’s chief economist. “Over the long-term, we expect rates to continue to rise as inflation broadens and shortages increasingly impact many segments of the economy. However, uncertainty about the war in Ukraine is driving rate volatility that likely will continue in the short-term.”

Separately, the Mortgage Bankers Association (MBA) reported an 8.5% week-over-week increase in mortgage applications as of March 4. Both the MBA’s Purchase Index and Refinance Index were up 9% from one week earlier.

“The average loan size remained close to record highs, with higher-balance loan applications continuing to dominate growth,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Photo: Frank Schmidtke / Flickr Creative Commons