Foreclosure Trends: A Market Correction and Opportunities for Investors

Foreclosure filings in 2023 saw a notable uptick, with real estate data analysis firm ATTOM reporting a 10 percent increase compared to the previous year. This surge, characterized by default notices, scheduled auctions, and bank repossessions, is viewed by experts as a correction in the housing market after years of post-COVID-19 volatility.

Foreclosure Statistics

According to ATTOM, foreclosure filings reached 357,000 homes in 2023, representing approximately 0.26 percent of all U.S. homes. While this indicates a slight increase from the previous year, it is considerably lower than the 2019 figure of 0.36 percent. In a statement to Newsweek, the CEO of ATTOM, Rob Barber, emphasized that this rise is a market correction rather than a cause for alarm, signaling a return to more traditional patterns.

As expected, the data was not evenly distributed across the country.  The ATTOM study highlighted states such as New Jersey, Illinois, Delaware, Maryland, and Ohio registered the highest rates of foreclosures in 2023. Metropolitan areas including Atlantic City, Lakeland, Columbia, and Fayetteville reported the most foreclosure activities. 

Additionally, while not leading the nation, other areas also saw significant increases.  In 2023, for example, over 270,000 homes in the United States experienced the initiation of foreclosure proceedings by lenders, marking a 9 percent increase from the previous year. Notably, California, Texas, and Florida emerged as the front-runners in this trend. Conversely, bank repossessions witnessed a 2 percent decline compared to 2022, with Michigan, Pennsylvania, and California recording the highest numbers, as reported by ATTOM data.

Economic Factors Influencing Foreclosure Activity:

ATTOM’s spokesperson, Jennifer von Pohlmann, highlighted key economic factors influencing foreclosure activity in an interview with Newsweek. She mentioned that if home prices decline and unemployment rates rise, foreclosures could potentially increase. Additionally, the trajectory of interest rates, especially for adjustable-rate mortgages, may impact the risk of foreclosure.

In the Newsweek interview,  von Pohlmann emphasized that the path of interest rates, escalated following the Federal Reserve’s efforts to combat inflation, along with trends in home prices and unemployment rates, will play a pivotal role in determining the future trajectory of foreclosure activity. She also pointed out that the surge in interest rates, leading to elevated mortgage payments, particularly for those with adjustable-rate mortgages, has the potential to heighten the risk of foreclosure.

Impact on Residential Investment Market and Investor Opportunities:

The recent foreclosure activity is seen as a reflection of broader economic trends, making the housing market less predictable than during the pandemic. This shift presents both challenges and opportunities for investors, homeowners, and industry professionals.

In his earlier mentioned statement, Barber suggests that the current housing market landscape, with more predictable foreclosure filings, provides a silver lining for investors. This predictability allows for better planning and strategizing, offering investors greater confidence and insight. As economic trends continue to shape foreclosure activity, investors can leverage this information to make informed decisions.

The Road Ahead

ATTOM’s data showed that while foreclosure filings increased in 2023, data from December showed a 6 percent decrease compared to the previous month and a 2 percent decrease compared to the same time the previous year. The trajectory of interest rates, home prices, and unemployment rates will continue to shape foreclosure activity in the coming months.

The rise in foreclosure activity in 2023 is seen as a necessary market correction, providing a more predictable housing landscape. For investors, homeowners, and industry professionals, this presents an opportunity to plan and strategize with greater confidence. As economic factors continue to play a role, staying informed about regional trends and market dynamics will be crucial for those looking to navigate the evolving residential investment market.

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