If foreclosures are the end of the story, where does it start?

Our housing market has been uncertain for the last few years, and many are wondering where it’s headed now. Every two weeks or so, we hear the dreaded “F” word: foreclosures. How do they affect the market? In reality, foreclosure is the end of a story; we need to go back to the beginning because so much happens before a foreclosure occurs.

“The main difference between now and 2008 is the amount of equity accrued.”

The story starts with consumers. Prices go up, and people are forced to pay more for everything. Credit card interest rates rise, so we start spending less to save money. Less money spent means fewer products sold, and this in turn affects employers and businesses. They now must start cutting back hours and potentially laying people off to lower expenses and increase profitability.

Now employees need to find new jobs; if they can’t, they won’t be able to make car payments, afford rent, or take care of their mortgage. It all trickles down from there. If we look strictly at mortgages here in Sonoma County, the main difference between now and back in 2008 is the amount of equity accrued. Back then, it was minuscule—one blip and we were underwater.

Most people in today’s market have a substantial amount of equity, and foreclosure is usually a byproduct of not making payments for six to 12 months. Can it still happen? Perhaps, but it’s not even close to being in the conversation right now. For us, it comes back to jobs and hours worked. Companies will reduce hours worked before they need to do a layoff, so it’s a good metric to use and understand.

We’ll continue discussing this topic in the next video, but if you have any questions, don’t hesitate to reach out by phone call or email. Talk to you soon.