Foreclosure filings soar in the first quarter, as the economy slows and layoffs surge

Large-scale layoffs and the end of some pandemic-era assistance programs are causing more homeowners to struggle with mortgage payments, leading to the first significant increase in foreclosures in almost a decade.

The U.S. had almost 96,000 foreclosure starts during the first quarter, a 6% increase from the fourth quarter – and up 22% from a year ago, according to ATTOM Data. California had 6,867 foreclosure starts between January and March, the highest in the nation followed by Texas.

ATTOM estimates about 10,200 homes are in some form of the foreclosure process in California, a 24% increase from a year ago.  

It’s a dramatic about-face after a steady decline in foreclosure filings almost every quarter since 2010, when housing was attempting to recover from the Great Recession. With a booming economy and double-digit annual increases in home prices, foreclosures have given way to a majority of homeowners being equity rich than missing mortgage payments.

COVID CREATED A HOUSING BOOM THAT HAS COOLED WITH HIGHER MORTGAGE RATES

But the boom times are fading for some homeowners nationwide – and in California.

“Despite efforts made by government agencies and policymakers to try and reduce foreclosure rates, we are seeing an upward trend in foreclosure activity,” says Rob Barber, chief executive officer of ATTOM. “This unfortunate trend can be attributed to a variety of factors, such as rising unemployment rates, foreclosure filings making their way through the pipeline after two years of government intervention, and other ongoing economic challenges.”

When COVID arrived, many economists and housing experts predicted a massive number of foreclosures, as the jobless rate surged with the state-mandated lockdown. But federal funding and state-managed mortgage-assistance programs helped many homeowners until they could get back on their feet during the pandemic-powered recession.

And many consumers decided that if they were going to hunker down until COVID faded, they needed to buy a home for their families and embrace the new work-from-home life. Competition coupled with a critical shortage of homes on the market generated huge price gains nationwide, including a 53% increase – or $312,000 – between May 2020 and May 2022 in California, according to the California Association of Realtors. 

Foreclosure filings increased 36% in the first quarter compared to a year ago. SHUTTERSTOCK

Foreclosure filings by region

RegionForeclosure filings Q1 ’23Foreclosure filings Q1 ’22
Bakersfield436343
Fresno304248
Los Angeles3,0792,411
Riverside1,9611,441
Sacramento614619
San Diego627556
San Francisco849725
San Jose245204
Stockton210213

Source: ATTOM Data

KEEPING IT IN PERSPECTIVE: NO PANIC AT THE HOUSE

But with a cooling economy thanks to higher interest rates during the past year, the housing market – and some homeowners – have struggled. Home prices are down at least 11% from the peak of $900,000 in May 2022, and more companies – from Alphabet-owned Google to Facebook parent Meta Platforms – have been laying off workers.

It’s a one-two punch that has pounded some homeowners. Seven of nine metro regions in California reported an increase in foreclosure filings during the first quarter compared to a year ago. The Los Angeles region – from Santa Clarita (Valencia) to central Orange County – had 2,210 foreclosure starts, the third-highest in the nation behind New York City and Chicago. Riverside had the 14th-most foreclosure starts (see table).

While foreclosures have increased, they are a mere fraction of the pace during the housing crisis 15 years ago. About 4.1 million homes entered foreclosure from 2008 to 2011 in the U.S., with more than 25% of those in California, according to CoreLogic. 

Los Angeles had the third-most foreclosures in the U.S. during the first quarter. ADOBE STOCK

Or an average of at least 60,000 per quarter – about six times the figure for first-quarter 2023, according to ATTOM.

And many homeowners, thanks to the price gains in recent years, have “significant home equity that may help keep increased levels of foreclosure activity at bay,” Barber says.

A FREE STATE PROGRAM CAN HELP SOME HOMEOWNERS AVOID FORECLOSURE

For financially strapped homeowners struggling with their housing-related payments – such as the mortgage or property taxes – because of the COVID pandemic, the California Mortgage Relief program remains available with more than $600 million in funding. The free mortgage-assistance program has helped almost 13,700 homeowners catch up on their mortgage payments and property taxes.

The federally funded, state-managed program started in early 2022. Homeowners can receive as much as $80,000 from the program. 

However, homeowners must meet income requirements, based on their county and the number of adults in the house, in order to qualify for the program. The income limits are 150% of the county’s area median income – or about $142,000 for a two-adult household in Los Angeles County.

You can learn more about the California Mortgage Relief Program from a previous CalHomeNews story, including the income limits for several counties.