Foreclosure rates peaked in 2010 during what became known as the "mortgage crisis" or "foreclosure crisis." At that time, mortgage delinquencies primarily associated with subprime loans led to the collapse of the housing bubble, foreclosures, and the devaluation of mortgage-backed securities. However, following the crisis, foreclosure rates in the U.S. steadily decreased.
When the coronavirus (COVID-19) outbreak happened, and thousands of people lost their jobs or were otherwise unable to work and couldn't make their mortgage payments, it looked like the country was poised to go through another deluge of foreclosures.
But the government imposed a foreclosure moratorium, established a mortgage forbearance program for federally backed loans, and passed new mortgage servicing laws. So, foreclosures remained low in 2020 and 2021.
However, in 2022, foreclosure rates started to tick back up and are expected to rise further in 2023. Here's why and where foreclosure will likely happen in 2023.
According to a report by ATTOM Data Solutions, foreclosure activity in the United States in late 2022 continued to increase, nearing pre-pandemic levels. The report notes that in October 2022, foreclosure activity in the U.S. increased by 57% from a year prior.
As of late 2022, again, according to ATTOM Data Solutions, states with the highest foreclosure rates were:
These states often top the list of states with the highest foreclosure rates. But which states have high foreclosure rates tend to fluctuate. Over the years, states with high foreclosure rates have also included Ohio, Michigan, and Florida, among others.
The report also notes that 32,376 properties in the U.S. had foreclosure filings. So, as a whole, one in every 4,339 homes was subject to a foreclosure.
States that had the most foreclosure starts, again, according to ATTOM Data Solutions, included:
Overall, foreclosure starts were up 167% from one year prior. Also, according to ATTOM, foreclosure completions were up 64% from 2021.
Still, these figures are below pre-pandemic levels.
Since most foreclosure moratoriums and other COVID-related foreclosure protection laws expired by the end of 2021, an increase in foreclosure activity happened in 2022. (Because those foreclosure protections were temporary, it was only a matter of time before foreclosure rates began to normalize.)
And it stands to reason that foreclosure rates will continue to climb in 2023. A couple of reasons for increasing foreclosure rates are rising inflation and recession fears.
Inflation makes it difficult for some people to keep up with their mortgage payments. As prices for everything from eggs to cars go up, the cost of living for everyone becomes more expensive. So, many people can't pay their mortgages and end up going into foreclosure.
During a recession, foreclosure rates tend to increase. Recessions often go hand-in-hand with job layoffs, which also can cause people to fall behind in mortgage payments.
Another reason foreclosure rates might go up is that many people are exiting their COVID-19 forbearances. While lenders offer several options to help people get caught up on the skipped amounts, like with a loan modification or payment deferral, some people simply won't be able to resume making mortgage payments.
Yet, despite these factors, foreclosure rates are still expected to remain below or around pre-pandemic levels at least until mid-2023. Why are foreclosure rates staying relatively low?
For one thing, mortgage interest rates have climbed to around 7% in contrast to interest rates of about 3% from a year or so ago. Higher interest rates usually discourage potential homebuyers, who would have to pay higher monthly payments if they were to buy a home. Because high interest rates mean mortgage payments go up, many people are opting to forgo buying a home. When people stop taking out mortgages to buy homes, foreclosure rates usually don't go up.
Also, many current homeowners have low, fixed-rate mortgages (meaning they have affordable monthly payments) and a good amount of home equity (they could sell the home and walk away with some money if they get into financial trouble). So, the U.S. should avoid a massive wave of foreclosures.
Some states are usually more affected by foreclosure than others. In the past, states that have experienced many foreclosures include California, Florida, Illinois, Nevada, New Jersey, New York, and Ohio.
Still, predicting which states will have the highest foreclosure rates in 2023 isn't easy. Whether a state will have a high foreclosure rate depends on many factors, like employment, homeowner protection laws, and the housing market.
While foreclosure rates in 2023 are expected to be higher than during 2020, 2021, and 2022, again, a substantial wave of foreclosures isn't likely.
Unlike during the mortgage crisis, most homeowners won't go underwater on their mortgages, even if home prices significantly decline. The majority have equity in their homes because housing prices have progressively gone up over the past few years. Even homeowners who recently purchased their properties and the peak of the housing market tend to have equity because most loans require a sizeable down payment.
So, homeowners facing financial hardships should be able to sell their homes to avoid a foreclosure (and likely walk away with some cash) or work out a loss mitigation option with their loan servicer. Both federal and state laws offer various protections and alternatives so homeowners can prevent a foreclosure. Since the mortgage crisis, laws have gone into effect to ensure that borrowers are treated fairly in the loss mitigation process.
The main benefit of buying a home at a foreclosure sale is that the price is usually much lower than if you purchase a property through a regular sale. But bidding and buying a home at a foreclosure auction comes with risks, too.
If you have questions about how to buy a home at a foreclosure at auction or need help with the process, consider working with an experienced real estate agent or talking to a qualified real estate lawyer.
Learn more about foreclosures in What Is Foreclosure?
For information on how long a foreclosure takes, see States With Long Foreclosure Timelines.
Find out when a foreclosure can start in How Soon Can Foreclosure Begin?
If your home is in foreclosure, you might have more options than you think. Consider talking to a foreclosure attorney to learn more. A lawyer can advise you about foreclosure alternatives, your rights in a foreclosure under the law, and fight a foreclosure in court.
If you need additional information about foreclosure alternatives, a HUD-approved housing counselor can explain different options to you in more detail. A counselor can also help you deal with your mortgage servicer. Go to hud.gov to find a housing counseling agency near you, or call toll-free 800-569-4287.