The US housing market is experiencing a resurgence in foreclosures, reflecting the increasing cost of living across the nation. The trajectory of foreclosures has been upward in recent months, with a 7% increase from April and a 14% rise from the previous year in May, amounting to 35,196 properties as per the records of ATTOM, a real estate data provider.
Foreclosure initiations marked an increase of 4% from the previous month, tallying to 23,245 properties in May. This surge was especially notable in Florida, California, and Texas, leading the country with 2,901, 2,451, and 2,286 foreclosures respectively. Illinois and New York followed suit, with the initiation of 1,358 and 1,287 foreclosures each.
ATTOM’s CEO, Rob Barber, emphasized that the increased foreclosure activities align with the trend observed throughout the year and could possibly lead to further intensification in the future. This speculation has piqued ATTOM’s interest in monitoring the potential impacts on the housing market, given the substantial monthly increase in completed foreclosures.
Despite this upward trend, foreclosure rates are barely above their pre-pandemic lows. Financial analysts at Fitch suggest that this increase in distressed borrowers is a normalization process, a byproduct of the post-pandemic phase where consumers saw benefits from loan forbearances and government aids.
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Unfortunately, the risk of falling behind on payments is exacerbated as workers’ earnings remain below their pre-pandemic highs due to the persistent elevation of consumer goods and services costs. In fact, the median weekly earnings of full-time US workers, when adjusted for inflation, saw no post-pandemic gains. The typical full-time worker’s inflation-adjusted weekly earnings stood at $363 in 2023’s first quarter, down from $367 during 2020’s first quarter.
Florida, in particular, exhibited a higher prevalence of elevated foreclosure rates among large metropolitan areas. ATTOM’s data highlighted five cities with the highest foreclosure rates, three of which are located in Florida: Lakeland, Palm Bay, and Ocala. Other cities were Elkhart, Indiana, and Cleveland.
Large metro areas witnessing the most foreclosures included Jacksonville, Baltimore, Chicago, and Orlando. These escalating foreclosures rates coincided with a rise in Florida’s living costs, thus diminishing real, inflation-adjusted earnings.
Although inflation is gradually slowing down, the 4.9% rate in April is nearly twice as much as the pre-pandemic levels. According to the Federal Reserve, it is likely that the interest rates will have to remain elevated for a longer period to keep inflation under control.
Despite the looming threat of foreclosures, the unemployment rate remains favorable, thus suggesting an unlikely repetition of the 2007-2009 global financial crisis scenario. The expectation is for foreclosure activities to continue to rise, albeit not to the extent seen during the previous financial meltdown.
While the pandemic subsides, the US economy seems to be in recovery mode, but this semblance of normalcy doesn’t quite extend to the housing market. Recent data points to an unsettling trend: a rise in foreclosures across the country. This resurgence is particularly striking in three states: Florida, California, and Texas.
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In the fallout from the pandemic’s economic shockwaves, many households are grappling with heightened living costs that have outpaced income growth. With expenses mounting, foreclosure-related filings have seen an uptick. The recently observed increase isn’t an isolated incident but rather a consistent pattern manifesting throughout the year. Consequently, industry stakeholders are on high alert, diligently monitoring the potential repercussions on the overall housing market.
Ironically, the current foreclosure rates are roughly on par with their pre-pandemic counterparts. This points towards a sort of normalization after a period of fiscal aberration, where loan forbearances and government subsidies propped up many households. As these aids start to wear off, an increase in distressed borrowers is the unwelcome, albeit anticipated, outcome.
In addition to the fiscal burdens that homeowners are bearing, the erosion of purchasing power adds another layer of complexity. Despite rising nominal wages, the inflation-adjusted earnings of many full-time workers remain stagnant or even declining. This situation is especially dire in states like Florida, where foreclosure rates are soaring and the cost of living has spiked significantly post-pandemic.
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Florida, along with California and Texas, is leading the foreclosure numbers, a testament to the magnitude of the financial strain homeowners in these states are experiencing. Among them, large metropolitan areas like Jacksonville, Orlando, and several others are witnessing alarming foreclosure rates. Florida’s economic environment, characterized by increased living costs and dwindling real wages, is fueling this unfortunate phenomenon.
While the increased rate of foreclosures is concerning, it’s worth noting that the situation isn’t indicative of a full-blown crisis, thanks to the low unemployment rate. This silver lining suggests that, unlike the financial meltdown of 2007-2009, a mass increase in foreclosures is less probable. Nevertheless, the housing market remains under observation as foreclosure filings continue their upward climb.
