{"id":749956,"date":"2023-04-21T07:03:13","date_gmt":"2023-04-21T11:03:13","guid":{"rendered":"https:\/\/www.marketnewsdesk.com\/index.php\/falling-house-prices-and-softening-labor-market-unlikely-to-trigger-wave-of-foreclosures-according-to-first-american-real-house-price-index\/"},"modified":"2023-04-21T07:03:13","modified_gmt":"2023-04-21T11:03:13","slug":"falling-house-prices-and-softening-labor-market-unlikely-to-trigger-wave-of-foreclosures-according-to-first-american-real-house-price-index","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/falling-house-prices-and-softening-labor-market-unlikely-to-trigger-wave-of-foreclosures-according-to-first-american-real-house-price-index\/","title":{"rendered":"Falling House Prices and Softening Labor Market Unlikely to Trigger Wave of Foreclosures, According to First American Real House Price Index"},"content":{"rendered":"

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Falling House Prices and Softening Labor Market Unlikely to Trigger Wave of Foreclosures, According to First American Real House Price Index<\/b><\/p>\n

\u2014<\/i>A softening labor market combined with declining house prices may ultimately increase foreclosures, but the increase is more likely to be a trickle than a tsunami, says Chief Economist Mark Fleming\u2014<\/i><\/b><\/p>\n

SANTA ANA, Calif.–(BUSINESS WIRE<\/a>)–First American Financial Corporation<\/b><\/a> (NYSE: FAF)<\/b>,a premier provider of title, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today released the February 2023 First American Real House Price Index (RHPI)<\/a>. The RHPI measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels.Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability.<\/p>\n

Chief Economist Analysis:<\/b><\/p>\n

\n\u201cAffordability has now improved for four straight months, yet remains down 32 percent since February 2022, according to the RHPI. Recently falling mortgage rates have overpowered the affordability-dampening effects of higher nominal house prices,\u201d said Mark Fleming, chief economist at First American. \u201cNominal house price appreciation has slowed dramatically in response to affordability-constrained lower demand. After peaking in March 2022 at 21 percent nationally, annual nominal house price growth has since decelerated by 18 percentage points to 3.1 percent in February.<\/p>\n

\n\u201cReal estate is local, and house prices are down from their peaks in 37 of the top 50 markets. With house prices declining, some are concerned about the rising risk of a wave of foreclosures,\u201d said Fleming. \u201cYet, foreclosures are the result of two triggers: economic hardship and<\/i> lack of equity.\u201d<\/p>\n

The Dual Triggers Necessary for Foreclosure<\/b><\/p>\n

\n\u201cForeclosure is a two-step process. First, the homeowner suffers an adverse economic shock, such as a loss of income, serious illness, or the death of a spouse, leading to the homeowner becoming delinquent on their mortgage,\u201d said Fleming. \u201cHowever, not every delinquency turns into a foreclosure. With enough equity, a homeowner has the option of selling the home.<\/p>\n

\n\u201cThe reverse is also true. If the homeowner has little equity in their home, but suffers no financial setback that leads to delinquency, there is no need for a foreclosure,\u201d said Fleming. \u201cThis is what we call the \u2018dual-trigger hypothesis.\u2019 Economic hardship or a lack of equity are alone insufficient to trigger a foreclosure. Only when both conditions exist does foreclosure become a likely outcome.\u201d<\/p>\n

Equity Levels Remain High<\/b><\/p>\n

\n\u201cWhile nominal house prices are declining across many of the top 50 markets, there is one trend that bodes well for homeowners in all markets \u2013 much of the equity gained during the pandemic remains. For example, San Jose, Calif. has experienced the most severe price declines from the peak, yet house prices remain 14 percent above their pre-pandemic level,\u201d said Fleming. \u201cAs the housing market rebalances, price declines will continue across many markets, but those declines would have to be substantial to erase all of the equity gains accumulated by homeowners during the pandemic boom. Additionally, inventory remains historically low in many top markets, putting a floor on how low house prices can fall. The risk of the equity trigger for foreclosure is low.\u201d<\/p>\n

Unemployment Still Below Pre-Pandemic Averages<\/b><\/p>\n

\n\u201cWhile low compared with pre-pandemic levels, rising economic distress and the end of the foreclosure moratorium in 2021 have caused economic hardship for some, especially those homeowners directly impacted by the pandemic,\u201d said Fleming. \u201cForeclosures have increased from near zero, but remain well below pre-pandemic levels. Nonetheless, unemployment rates across the top 50 markets remain low.<\/p>\n

\n\u201cLas Vegas had the highest unemployment rate (6.0 percent) in February 2023, but still has a lower unemployment rate than its pre-pandemic historic average. Additionally, even as the Las Vegas unemployment rate sits above other top markets, house prices in Las Vegas are up 36 percent compared with pre-pandemic levels,\u201d said Fleming. \u201cAll 49 other top markets had an unemployment rate below 5 percent, which is lower than the pre-pandemic national historical average of 5.8 percent. So far, layoffs have not been broad based, and the protection that equity provides to those that have experienced economic hardship has helped to keep foreclosures from rising faster.\u201d<\/p>\n

Foreclosure Tsunami or Just a Trickle?<\/b><\/p>\n

\n\u201cEconomic distress and a lack of equity are the two triggers of a foreclosure. Alone, each trigger is necessary, but not sufficient to trigger a foreclosure. The equity acquired since the start of the pandemic can provide an important buffer for distressed homeowners. Additionally, while the labor market is showing some early signs of slowing and economic distress is increasing, unemployment rates remain low across the top 50 markets,\u201d said Fleming. \u201cA softening labor market combined with declining house prices may ultimately increase foreclosures, but the increase is more likely to be a trickle than a tsunami.\u201d<\/p>\n

February 2023 Real House Price Index Highlights<\/b><\/p>\n