The impact of widespread foreclosure
A few foreclosures here and there don’t really make a ripple in the pond for most real estate markets. However, sometimes a lot of foreclosures happen at once, and that’s not great for the wider world. During the Great Recession, it wasn’t uncommon for blocks and blocks of houses to largely be for sale at greatly reduced prices due to foreclosure.
Because so many borrowers had negative equity in their homes, they didn’t feel they were losing anything by walking away from them. This created a situation where already sagging real estate prices became heavily depressed in areas of high foreclosure. Across the U.S., foreclosures climbed like never before, with some areas of California and Florida having foreclosure rates that topped 5% in 2008.
In 2008, more than 2 million homes had at least one foreclosure filing, up from 717,000 in 2006. This might not seem like a lot, but consider that in the current housing market, there were only about 1 million units available for sale in April 2023, which represented 2.9 months of housing supply. Basically, six months of homes were swept into foreclosure in just one year.