Foreclosures on the Rise as Interest Rates Continue to Climb
Foreclosure activity in the US is on the rise, and it is expected to continue to increase throughout 2023. This is due to a number of factors, including rising interest rates, inflation, and rising housing prices. According to ATTOM Data Solutions, there were a total of 185,580 U.S. properties with foreclosure filings in the first half of 2023. This is up 13% from the same time period a year ago and up 185% from the same time period two years ago.
The Federal Reserve is raising interest rates in an effort to combat inflation. However, higher interest rates make it more expensive for homeowners to borrow money, which can make it difficult for them to afford their mortgages. In addition, rising inflation is making it more expensive for homeowners to afford basic necessities, such as food and gas. This is squeezing household budgets and making it more difficult for some homeowners to make their mortgage payments.
Rising housing prices are making it more difficult for homeowners to afford to sell their homes. This is because homeowners who are underwater on their mortgages may not be able to sell their homes for enough money to pay off their mortgages. If the Federal Reserve continues to raise interest rates, it is likely that foreclosure activity will continue to increase throughout 2023. This could have a negative impact on the housing market and the economy.
Here are some of the key factors that could contribute to an increase in foreclosures in the second half of 2023
- Rising interest rates: The Federal Reserve is expected to continue raising interest rates in an effort to combat inflation. This will make it more expensive for homeowners to borrow money, which could lead to more foreclosures.
- Rising inflation: Inflation is making it more expensive for homeowners to afford basic necessities, such as food and gas. This is squeezing household budgets and making it more difficult for some homeowners to make their mortgage payments.
- Rising housing prices: Housing prices are still rising rapidly in many parts of the country. This is making it more difficult for homeowners who are underwater on their mortgages to sell their homes and avoid foreclosure.
In addition to the factors mentioned above, the recent negative outlook by Moody’s more than a dozen banks is a cause for concern. This is because these banks hold a significant amount of credit card debt. If a large number of borrowers default on their credit card debt, it could put these banks at risk of failure. This could lead to a systemic risk, whereby the failure of one bank could lead to the failure of other banks. This could have a ripple effect through the financial system, leading to a recession.
The potential for systemic risk is especially concerning given the high level of credit card debt in the US. Credit card debt is unsecured debt, which means that creditors can garnish wages or seize assets if borrowers default on their payments. This makes credit card debt more risky for banks than other types of debt, such as mortgages. If a large number of borrowers default on their credit card debt, it could lead to a wave of bank failures. This could have a devastating impact on the economy, as banks play a vital role in lending money and providing other financial services.
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