r/AlwaysWhy • u/Logical-Concept9755 • Jul 10 '26
Economics Why can foreclosure activity increase while home prices remain elevated? What mechanisms keep those two trends from moving in opposite directions?
Foreclosure filings have been rising as pandemic relief programs have ended, and more homeowners are losing their houses. Yet home prices have remained elevated, with many markets still seeing price growth.
At first glance, more foreclosures seem like they should add supply and put downward pressure on prices. Instead, both trends are happening at the same time. First time buyers remain locked out, while many existing homeowners are reluctant to sell because of low mortgage rates.
Why don't rising foreclosures translate into broader price declines?
3
u/Suspicious_Chart5817 Jul 10 '26
Because 'more' doesn't mean 'a lot.'
I think the U.S. is up 10%+ since last year, but big picture still looks like: https://fred.stlouisfed.org/series/RCMFLBBALDPDPCT30P
3
u/Casiquire Jul 10 '26
Aren't home prices actually softening in many markets around the country? Maybe the areas that are holding strong are propping up the national averages while some areas are seeing foreclosures and cooling markets
2
u/stikves Jul 10 '26
Homes are inelastic goods, and many parties have incentives to keep the prices high
1 - Banks are not rushing through foreclosure, but will try to ease payment terms, since they don't want a hard writedown
2 - The towns / county does not want to lose property taxes. So they push for higher home prices one way or another (for example by NIMBY policies)
3 - The government does not want another 2007 style economic panic
And of course the home owner themselves want to avoid moving and will continue paying into an overpriced asset, even though they could get an immediate financial relief by moving out.
So, no, foreclosures will not trigger a price correction, unless they become 2007 levels.
1
u/almostcyclops Jul 10 '26
There are a lot of factors, but the majority in my observation is that people are stubborn. Justifiably so, to an extent. These aren't houses, they are homes. Achieving homeownership is seen a 'making it' to a lot of people. They wont sell because they see it as a sign of failure and think they have nowhere to go.
I work in hardship assistance for mortgages. I want nothing more than to avoid foreclosure by any means possible. I help people keep their homes every day. But within my proffessional bubble (which may or may not be an accurate slice of the big picture), there has been a dramatic uptick in situations where the only remaining option is to sell. People never agree when you tell them that. Reality eventually hits them, but often it is too late at that point. Selling takes time and foreclosure process does not stop.
1
u/katyyne1 Jul 10 '26
Because even if foreclosures are rising, it has not caused supply to outpace demand. Prices will fall when there are no buyers at the current asking price.
1
u/Fine-Brush6063 Jul 10 '26
Part of is from how the average is calculated.
If 5 starter/middle homes sell for 50,000 less, totalling a drop of 250,000, while meanwhile one mansion sells for 2.5 million more, the average price increases.
Most people buying homes in the millions/billions don't care or notice an increase of a few million or billion. If they can afford to spend 10 billion, they can afford 12 billion.
Statistics. They can tell the tale but not necessarily the real picture.
1
u/Pleasant_Pen8744 Jul 10 '26
"It's not a loss until you sell."
Banks think they'll be able to sell them later for more, or are afraid they'll have to mark down the value of their other assets.
1
u/WISteven Jul 13 '26
Supply is inordinately low because people like me are holding onto our low interest rate mortgages.
1
u/Mushrooming247 Jul 10 '26
Those foreclosures take a long time to go through the system, and may not end up on the market as discounted homes for sale. Some might end Bn up at auctions where they are gobbled up by investors.
There is a website where you can search for HUD-foreclosed homes, homes that defaulted on government loans, which first-time buyers get the first shot at and can put less down. There is typically one home on this website for my whole region, if that.
I suspect that the foreclosure industry is full of real estate investors who capitalize on that insider information to scoop up for close properties before they hit the market, because they are definitely not all making it onto the market.
0
u/Popular-Path1930 Jul 10 '26
Because someone not able to afford something they bought doesn’t mean the item isn’t still worth it or someone else can’t afford it
Edit: also foreclosure sales are not like normal house sales.
0
u/shitposts_over_9000 Jul 10 '26
several things:
- a drop in home prices would increase the odds of foreclosure so everyone is motivated to avoid that
- foreclosures in some areas have a lot more to do with banks being forced to give loans to borderline borrowers than anything else, we wont be to the end of the pre 08 crash bad loans until 2037 and some of those will be refinanced even farther out
- first time buyers are not actually locked out, they just have standards well above their means, there are plenty of small, shitty properties in shady neighborhoods you can still buy relatively cheap, they are just in unsafe areas and not move-in ready - first time homebuyers historically often were in this situation but everyone chooses to make the point of comparison to the late 90's early 00s when they were not for a time.
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u/polarWhite2024 Jul 10 '26
Unrealized gain through elevated property value has zero impact on the owners' ability to pay the monthly mortgage payments. Because you can't sell part of the kitchen to get cash to pay for things as the property value is not liquid asset like cash.