Rising foreclosures could signal growing consumer stress

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The end of forbearance programs just puts added pressure on some U.S. households

As a two-year pandemic begins to wind down in the U.S., consumers are beginning to feel new kinds of stress in the form of record-high gas prices, soaring food costs, and rising interest rates. 

Foreclosures are also rising. In a recent report, real estate data firm ATTOM found that foreclosure filings in February totaled 25,833 – up 11% from January and 129% from February 2021.

LegalShield, a company serving 2 million households with a wide range of legal services, tracks clients’ call trends and, as far as real estate is concerned, has found them to be a valid and reliable leading indicator of what’s happening in the market.

“When we see a significant increase in calls from people calling about foreclosures, we know that it is going to have a negative impact on home sales, housing starts, and mortgage applications," said Legal Shield CEO Jeff Bell in an interview with ConsumerAffairs.

More ‘negative’ calls

Right now, Bell says his company is seeing an increase in “negative” calls about housing, including from people facing eviction from a rental property. 

He notes that this increase closely correlates with the expiration of eviction moratoriums and forbearance programs that were enacted years ago to minimize economic damage caused by the pandemic. Now that those programs have ended, the extent of the economic damage and consumer stress is being revealed.

“It was a particularly regressive policy decision to tell people to shelter at home or to lock down," Bell said. “By that I mean people who can only make their living by leaving the home were adversely affected. It was especially hard on women.”

And it could result in an increasing number of home foreclosures in the months ahead. At least, Bell believes that’s what the call trends are telling him.

“We are very concerned with the trends,” Bell said. “When we see that for the last four months the number of calls about foreclosure has been increasing, to us that is a sign that there will be a change in the number of foreclosures as well as a negative impact on the housing market overall.”

Foreclosures poised to spike higher

No one is predicting a wave of foreclosures like the one that crashed the housing market in 2008. Most of those home losses were attributable to subprime and adjustable-rate mortgages. However, the foreclosures coincided with the Great Recession.

Rick Sharga, executive vice president at RealtyTrac, an ATTOM subsidiary, expects to see double-digit month-over-month growth and triple-digit year-over-year increases in foreclosures well into the third quarter. 

"This isn't an indication of economic turmoil, or of weakness in the housing market; it's simply the gradual return to normal levels of foreclosure activity after two years of artificially low numbers due to government and industry efforts to protect financially-impacted homeowners from defaulting," Sharga said.

But with all the other economic challenges consumers are now facing, foreclosures bear watching since they could be an early sign of more than normal economic damage.

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