Foreclosures are starting to tick up a bit, and when people hear that, their minds often go straight back to 2008 and the housing crash. That reaction makes sense. So let’s take a closer look and see if what’s happening now is actually connected to what happened back then.

The simple truth is that foreclosure filings are rising. But they are still nowhere near crisis levels, and they are not expected to head in that direction either. Here’s why.

Take a look at serious delinquencies, which are loans where the homeowner is more than 90 days behind on their mortgage payments.

While they’ve gone up a little, data from the Federal Reserve Bank of New York shows they’re still at relatively low levels. And they’re nowhere close to what we saw when the housing market crashed (see graph below).

Right now, about 1% of mortgages are seriously delinquent. That means roughly 1 out of every 100 homeowners is behind on their payments.

Around the time of the crash, that number was closer to 9%, which is about 1 in 11 homeowners.

That’s a huge difference.

It’s also important to remember that not every delinquency turns into a foreclosure. Many homeowners who fall behind work out repayment plans with their banks, since lenders don’t want to deal with a flood of foreclosures either.

That’s why the number of foreclosures is even lower than delinquencies. ATTOM reports that only 0.3% of all homes are currently in the foreclosure process, and not all of those will end in a full foreclosure. This isn’t a wave, it’s more like a small ripple.

If People Are Falling Behind on Payments, Why Aren’t There Even More Foreclosures?

You might be wondering, if people are having money troubles, why aren’t we seeing more foreclosures? Here’s a simple way to explain it.

When people feel financial pressure, they usually make their mortgage payment a top priority. After all, the last thing anyone wants is to lose their home.

Data from the Federal Reserve Bank of New York shows that serious delinquencies have increased more for credit cards and auto loans (the blue and green lines). But mortgage delinquencies and home equity lines of credit, which let you borrow against your home’s value, haven’t seen the same jump (the yellow and orange lines). Overall, they’ve stayed much more stable.

In other words, people might fall behind on other debts, but they do everything they can to hold onto their homes. Plus, in today’s housing market, most homeowners have enough equity to make that possible.

Home Equity Changes Everything

Over the past few years, many people have built up significant equity in their homes, which gives them more options. As Daren Blomquist, VP of Market Economics at Auction.com, explains:

““Distressed homeowners… many times they still have equity in their homes. There’s an opportunity for them to sell that home, avoid foreclosure, and walk away with equity.”
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— Daren Blomquist, VP of Market Economics at Auction.com

That’s a big difference from 2008. Back then, many homeowners owed more than their homes were worth, so selling wasn’t really an option. Today, selling is a realistic choice for many people. And even if someone doesn’t have enough equity, homeowners are encouraged to reach out to their loan servicer early to explore alternatives to foreclosure.

Bottom Line

Are foreclosure filings up a bit? Yes. Are they close to crash levels? No. Homeowners now have much more equity and flexibility than they did during the crash.

If the headlines have you worried, don’t panic, take a step back and gain some perspective. The current data shows this isn’t a repeat of 2008.