Is another Great Recession coming?

Many of you know, I cut my teeth during the great recession of 2008-2012. I was newly licensed, I hadn't built much of a business yet, and I took the deals I could get. The deals available for agents like me were distressed properties, or to sharpen up my resume! I felt fairly unemployable by then, I was really enjoying the real estate game, so I dove into pre-foreclosure sales. Many of you know them as short sales. At the end of the day, my group helped over 1,000 homeowners avoid foreclosure and sell their home.

Fast forward to today. I am always going to shoot my people straight. In my 16 years of real estate, I have NEVER seen a market shift this quickly. When I ask others with even more years in the business, they agree. In less than a 6th month period of time, interest rates are up by 3%, buyers have lost 30%-40% of their purchasing power, home values are down 10%-20% depending on your market (give or take), and inventory has increased in dramatic fashion.

So the question I am getting a lot is, do you see another great recession coming? Are we about to see a tsunami of foreclosures and a struggling market similar to what happened in the real estate market crash of 2008? The short answer is no—foreclosures & short sales will start to increase again but not enough to worry over. However, I’ll go into more detail and explain why increasing foreclosures don’t spell doom for the market.

At the beginning of the pandemic, many thought that a housing market crash would surely happen. For the first few weeks, I was having flashbacks to 2008. I even dusted off my old short sale notes! Fortunately, I didn't need them. In fact, because of the combination of government support, low interest rates, people reevaluating what 'home' meant, and eager homebuyers, we experienced a housing BOOM. However, the various foreclosure moratoriums that protected people from financial disruptions during the pandemic are now ending, as a result, the number of foreclosures are now increasing again at an alarming rate.

The number of foreclosure notices has increased by 219% since January 1. According to ATTOM Data Solutions, the number of properties that had foreclosure filings is up 153% compared to the same time period last year. Due to the tiny number of foreclosures over the last few years, the large increases we’re seeing now may look alarming on their own, but in context, this spike is a momentary blip as the market begins to normalize, and the foreclosure moratoriums and forbearance agreements come to an end. 

Rick Sharge, executive vice president of market intelligence at ATTOM, said, “Foreclosure activity across the United States continued its slow, steady climb back to pre-pandemic levels in the first half of 2022. While overall foreclosure activity is still running significantly below historic averages, the dramatic increase in foreclosure starts suggests that we may be back to normal levels by sometime in early 2023.”

So how are these normalizing foreclosure levels going to affect the market? Out of the 1.75 million homeowners who were protected by a forbearance program, it would not take that many foreclosures to alleviate our historically tight housing market. According to the National Association of Realtors, only 1.37 million units are currently available for sale, which is the lowest inventory level since data started being tracked in the 1980s. Frustrated buyers may eventually have more options available to them, but it would take many months of these foreclosure increases for buyers to truly see a glut of inventory. 

However, we don't see this happening. As much as I would be ready to assist this segment of the market, I am not dusting off my short sale notes and setting up shop full time again. However, if you ever hear of someone in need, we are still able to assist in a pre-foreclosure situation!

If you’re curious about what your home could sell for in the current market, check out this instant home value tool, which takes recent sales, tax records, arv's, and nearly 100 other data points into account:

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If you have any questions about the end of forbearance programs, the rise in foreclosures, or anything else about our shifting market, don’t hesitate to reach out by phone at (425) 577-9814 or email at Info@SellWithWes.com. I’m happy to answer any questions you have.