US housing market foreclosures
A sharp jump in foreclosures raises fresh alarm over the U.S. housing market. | Image: AP Photo/Paul Sakuma, File
  • Foreclosures in the U.S. housing market spiked in October.
  • The jump in foreclosure data seems surprising at first as mortgage rates are low.
  • Home price growth has been outpacing wage growth, which is pricing buyers out of the market and creating the situation for a potential crash.

Week after week, data pointing toward a U.S. housing market crash keep turning up. Just last week, the National Association of Realtors (NAR) gave us evidence of a U.S. housing market bubble when their chief economist Lawrence Yun pointed out that “income and wages are not rising as fast and will make it difficult to buy once rates rise.”

And now, another piece of data from ATTOM Data Solutions reaffirms that we are truly in the midst of another housing bubble.

Foreclosure activity spikes in October

ATTOM Data Solutions is a curator of the U.S. housing market database. According to the firm’s October 2019 foreclosure market report, the number of properties with foreclosure filings in the U.S. shot up 13% month over month. Foreclosure filings typically include bank repossessions, scheduled auctions and default notices; an increase in this number is a red flag for the U.S. housing market.

The total number of repossessed properties spiked 14% month-over-month in October to 13,484, the highest this year.

What’s more, ATTOM reports that foreclosure starts – when lenders initiate the foreclosure process – increased 17% month-over-month in October. On a month-over-month basis, this was the first double-digit increase in foreclosure starts since February 2018.

Of course, market bulls will point out that foreclosure activity actually declined on a year-over-year basis. But that’s a tad surprising given that the 30-year fixed mortgage rate is close to historic lows after declining remarkably this year, so there should ideally be no problem of affordability.

FRED graph showing mortgage rates.
Despite the 30-year fixed mortgage rate being close to historic lows, foreclosures are spiking in the U.S. housing market. | Source: St. Louis Fed

But that’s not the actual scenario as the spike in foreclosures clearly shows. It’s not surprising why this is happening when you take a closer look at some other data points that clearly indicate a housing market bubble.

High home prices are pricing buyers out of the market

ATTOM had pointed out earlier this year that home price growth in the U.S. is outpacing wage growth. According to a report released in January, home prices in the U.S. were growing at a faster pace than wages in 80% of the housing markets in the country.

What’s more, the trend of home prices outpacing wage growth is nothing new. According to NAR, home prices shot up 47% from 2012 through 2018. By comparison, the growth in wages was a puny 16%.

As such, it is not surprising to see why buyers are now feeling the heat, leading to a sharp jump in foreclosures last month after a tepid sales performance of both new and existing homes in September.

As buyers were unable to come up with the money to buy a home, prices came crashing down in September despite tight inventory levels. NAR reports that existing home inventories dropped to 4.1 months in September as compared to 4.4 months in the prior-year period. At the same time, sales of existing homes dropped 2.2% during the month.

Meanwhile, sales of new single-family homes were also down in September. This combination of tight inventories, tepid sales and weak wage growth is bad for the U.S. housing market as it will eventually lead to a sustained drop in prices.

However, Freddie Mac believes that the U.S. housing market remains in good shape. According to its October forecast, home prices are expected to increase 3.3% this year followed by a 2.8% increase in 2020. CoreLogic is also singing a similar tune, predicting sunny days ahead for the U.S. housing market as per the latest outlook:

National home prices increased 3.5% year over year in September 2019 and are forecast to increase 5.6% from September 2019 to September 2020, according to the latest CoreLogic Home Price Index (HPI®) Report.

But then, there’s solid data that suggests that a downturn in the U.S. housing market is already underway, and anyone denying that should come out of their bubble.

This article was edited by Sam Bourgi.

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