Foreclosures on the rise, but remain in check 

Foreclosure filings were significantly higher than a year ago, but still well below pre-pandemic levels — a sign that they're not yet a major worry in this slowing market.

ATTOM reported 30,677 foreclosure filings across the U.S. in November, which is a 57% jump from a year ago, but down 5% from the previous month. It's also down nearly 39% compared to November 2019, when nearly 50,000 foreclosures were filed, according to ATTOM data.

One factor to consider with the year-over-year rise in foreclosure filings is that levels were artificially low throughout much of 2021 due to foreclosure moratoriums through July 2021, and an extension option available into the fall for some homeowners.  

In contrast, during the real estate slowdown that started around 2008, foreclosure filings exploded in a market that was dealing with loose credit standards, a surge in subprime lending, an oversupply of homes and rising unemployment. In November 2009, for example, the U.S. had more than 306,000 filings. The peak month during the Great Recession was in March 2010, when there were more than 367,000 foreclosure filings, according to ATTOM.

A report earlier this week from Black Knight showed that 8% of homes bought in 2022 are marginally underwater and four of 10 have less than 10% equity, raising concerns that foreclosure rates could rise among those who bought at the recent peak of the market. 

The report concluded that equity risk persists for those who bought homes with mortgage loans in 2022, while risk remains minimal for those who bought a home 12 or more months ago.

Still, Rick Sharga, executive vice president of market intelligence at ATTOM, doesn't foresee a wave of foreclosures from those new buyers. With unemployment rates remaining low and delinquency rates well below historical averages, he expects the overwhelming majority of underwater borrowers will continue to make monthly payments.

"What triggers a foreclosure is a financial catastrophe that makes it difficult for a borrower to make the mortgage payment — job loss, income loss, divorce, death in the family, or unexpected expenses — not being underwater on a loan," Sharga said in an email.

The highest foreclosure completion rates last month were in Illinois and Delaware, which are also places that have unemployment rates higher than the national average. Major cities with the highest foreclosure rates were Cleveland and Chicago, according to the report.

States with the most foreclosure starts were California, Texas and Florida, potentially a result of surging prices over the past two years. The Sun Belt saw some of the highest levels of new buyers during the pandemic, and demand pushed up prices. Among major cities, New York, Chicago and Houston had the most foreclosure starts. Nationally, ATTOM estimates foreclosure filings started in November were still comfortably below pre-pandemic levels.