Disappearing Foreclosures Add to Home Price Inflation

Supply is so tight in the housing market that buyers willing to bid on a foreclosed home are finding there’s not much out there.

Foreclosure filings nationwide affected just 0.11% or 151,153 homes last year, according to real estate data provider ATTOM.[1]That’s a record low in their data, and down 58% from 2019’s pre-pandemic pace.

The plunge in foreclosures was a surprise to Rick Sharga, executive VP at RealtyTrac, which is part of ATTOM. He was expecting a surge after the end of forbearance programs and pandemic stimulus checks. But a combination of flush savings accounts, rising homeowner equity, job gains and rising pay mean fewer people are falling behind.

The lack of repossessions is contributing to the record low in the number of existing homes for sale currently,[2] and adds to a whole host of reasons why home prices are marching higher.

Housing will probably become more expensive over the course of this year, despite the price jumps we’ve already seen. ATTOM says its analysis shows buying a home is currently more affordable than renting in the majority of U.S. counties. It certainly helps home shoppers that the average rate on a 30-year fixed rate mortgage remains below 4%.[3]

It’s a very strange situation. Usually there’s a glut of homes and soaring foreclosures after a recession, as we experienced with the Great Financial Crisis. The unusual circumstances are another example of what we’ve been harping on: today’s economic conditions aren’t like any prior recovery, making it difficult to forecast the future.

We bring up the strength of the housing market because if inflation statistics remain high this year, we will look to homes as a key driving force. Their rising prices, and the increases in apartment rents, are slowly being added to the Consumer Price Index (CPI), and so the bulk of 2021’s sticker shock should be felt this year. Housing is such a large component of CPI that it can more than offset improvement in other areas, such as furniture, cars, or energy. We go into more detail about that in our Q4 Focus article, Inflation: The Good, The Bad and The Ugly.

Goals-based investors who have set a home purchase as part of their financial objectives may want to review with their advisor if they are on track, considering many housing market experts, such as Zillow,[4] see prices continuing to rise for the foreseeable future.

[1] ATTOM, www.attomdata.com, ‘’U.S. Foreclosure Activity Drops To An All-Time Low in 2021,’’ Jan. 13, 2022
[2] National Association of Realtors, ‘’Annual Existing-Home Sales Hit Highest Mark Since 2006,’’ Jan. 20, 2022
[3] Freddie Mac weekly national survey, http://www.freddiemac.com/pmms/, as of Jan. 20, 2022
[4] Zillow.com, “Zillow’s Hot Housing Takes for 2022,’’ Dec. 8, 2021

 

Further reading:

You May Need a Bigger Down Payment for a New Home

Is Inflation Pressure Easing? Factory Input Costs Tumble Again

Read Our 2022 Outlook: The Next `Unprecedented’ Year

If Inflation Returns, Bond’s Diversification Power May Disappear

Essentially Nothing. That’s How Much Bonds May Return Over Next Five Years

It’s Getting Harder to Fund Retirement Using Bonds

The Biggest Retirement Fear: Outliving My Money

Many GenXers Agree: It’ll Take a Miracle to Have a Secure Retirement

This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.

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