2021 Brings in New States Topping the Foreclosure Charts

Key Takeaways

August 26th marked the lifting of the 17-month federal foreclosure moratorium; we at Knock wanted to look into the states most impacted by foreclosures throughout the Covid-19 period and the indicators contributing to their susceptibility. 

Overall, data shows that foreclosures have down-trended nationally year-over-year since 2010. This can be attributed to the economy’s recovery over time from the Great Recession. In the years preceding this event, we have seen many improvements in pertinent metrics vital to our nation’s housing health, including rises in income, investment, and lowering interest rates. This overall increase in economic health has led us to a point in 2020 where foreclosures have hit their lowest levels in a decade. However, with the Covid-19 unemployment spike felt across the country, and the ending of the foreclosure moratorium, we are beginning to see an uptick in foreclosures in 2021, with increases in certain states that have had fewer relative foreclosures historically.

Line graph indicating the downward trend of real estate owned foreclosure transactions from 2015 to 2021

Analysis of the states with the highest percentage of real estate owned (REO) transactions out of total fair market transactions revealed that Virginia and Georgia had taken the lead, outpacing New Jersey and Mississippi, which had the highest percentage of foreclosures in previous years. To dive deeper into the circumstances that caused this shift, we selected a combination of metrics that encompass both current market conditions and longer rooted trends such as, home price appreciation, unemployment rates, debt to income ratios, income inequality, and the time it takes for a foreclosure in a state. 

We found that home price appreciation changes, unemployment rates, and debt to income ratios had a strong correlation to REO transactions when regressed historically, with income inequality showing a moderate correlation. This can be attributed to home price appreciation's integral role in maintaining and growing homeowner’s equity, as a home is one of the largest investments and possible returns made in a person's lifetime. Without the financial capacity to save, unemployment is the leading force in foreclosure rates as high debt to income ratios indicate more long term trends of financial overburden. Furthermore, income inequality plays a part in identifying populations where these aforementioned forces can have a stronger impact. When combined, the foreclosure response to these sensitivities can either be delayed or accelerated by that state's approach to foreclosure processes.  Whether a state has judicial or non-judicial routes ultimately determines its impact on delinquent homeowners.

States with judicial foreclosure processes, meaning the lender must file suit against the homeowner in a court of law, tend to take longer and can span years from the initial notice of delinquency to the loss of a home. Those states with non-judicial foreclosure processes can take as little as 100-200 days. This stark distinction in timing between foreclosure procedures gives homeowners in default in non-judicial states less time to access remedies and come up with missed mortgage payments. Furthermore, another safeguard for some states not seen in the top foreclosure list is those with added protection for homeowners in the foreclosure process. States like California, Colorado, Minnesota, and Nevada all passed laws to increase homeowner protections, further slowing down the process due to the requirements lenders and servicers must comply with under these laws.6

However, the introduction of Virginia, Georgia and New York to the foreclosure top 5 shows an evolution from the states chronically seen at the top of the foreclosure list. Our analysis found that home price appreciation has become a double edged sword when it comes to foreclosures in 2021. Previously, lack of home price appreciation has been attributed to underwater mortgages and high foreclosure rates, but in 2021, we are finding that large increases in home price appreciation is proving just as detrimental to states with higher percentages of at risk homeowners. States with high unemployment, income inequality and debt to income ratios are seeing upticks in foreclosures as homeowners inability to keep up with the tax burdens associated with the drastic year-over-year increases in market values takes effect. In 2021, on average Virginia’s property taxes increased 9%, Georgia’s at 14%, and New York at a whopping 21%. These added tax burdens are disproportionately burdensome to the long term homeowners who stayed put amidst the pandemic as their assessments reflect the market values of the homes that did sell, and the homeowners who could afford them. This additional cost to homeowners is one they are expected to bear as the federal foreclosure moratorium and its forbearance came to an end. 

Chart listing the top 5 foreclosure states from January to September 2021: Virginia, Georgia, New Jersey, Mississippi, New York.

Within these top states, the townships with the most REO’s are; Richmond, VA (11%), Chattanooga, GA (5%), Vineland, NJ (5%), Jackson, MS (2%), and Corning, NY (5%).

This causality in foreclosure rates has shifted from the signifying factors we have grown to know in previous years. Below find the states more synonymous with high foreclosure rates since the Great Recession;

Chart indicating the top 5 foreclosure states in 2019: New Jersey, Mississippi, Delaware, Connecticut, New Mexico

Within these top states, the townships with the most REO’s were; Vineland, NJ (45%), Jackson, MS (13%), Dover, DE (7%), Torrington, CT (12%), and Albuquerque, NM (6%).

These states were some of the slowest to recoup their peak home price values from pre-Great Recession, and those hit hard with unemployment recovery from 2009 to 2019. The percent each state recuperated from their fall from pre-Great Recession home price peak’s by 2019 show: New Jersey (10%), Delaware (-6%), New Mexico (11%), Mississippi (8%), and Connecticut (-11%), compared to the national average home price appreciation recovery of 23%. Since the Great Recession, this failure for many states to regain the home value lost, left many long-term homeowners with underwater mortgages until recently.  

Pandemic-induced housing demand has jump-started home price growth across the country, providing year-over-year increases at nearly 15-20x the average rates felt over the last decade for the states reflected in the 2019 chart above. The HPI growth of the states previously at the top of the foreclosure charts from 2019 to 2021 include Connecticut (22%), New Jersey (20%), Delaware (19%), New Mexico (19%), and Mississippi (14%). In all states, this marked full recuperation of peak home prices from pre-Great Recession times, as well as home price appreciation increases more inline with national averages. If home price appreciation continues for these states with high foreclosure rates in recent years, we expect the percent of real estate owned transactions to remain low in these states.

Sources

  1. The investopedia team. “Unemployment Rate.” Investopedia.com, Investopedia, 28 September 2021, https://www.investopedia.com/terms/u/unemploymentrate.asp. Accessed 2021.
  2. Investopedia team. “Debt-to-income(DTI) ratio.” Investopedia.com, Investopedia, 14 March 2021, https://www.investopedia.com/terms/d/dti.asp. Accessed 2021.
  3. Investopedia Team. “House Price Index(HPI).” Investopedia.com, Investopedia, 26 August 2021, https://www.investopedia.com/terms/h/house-price-index-hpi.asp. Accessed 2021.
  4. Investopedia Team. “Gini Coefficient.” Investopedia.com, Investopedia, 28 April 2021, https://www.investopedia.com/terms/g/gini-index.asp. Accessed 2021.
  5. Perez, Yarilet. “Foreclosure Definition.” Investopedia, 2021, https://www.investopedia.com/terms/f/foreclosure.asp. Accessed 6 December 2021.
  6. Loftsgordon, Amy. “Special Foreclosure Protections in Colorado, Minnesota, and Nevada.” Nolo, https://www.nolo.com/legal-encyclopedia/special-foreclosure- protections-in-colorado-minnesota-and-nevada.html. Accessed 6 December 2021.

Data Resources

  1. MLS data - ATTOM data solutions
  2. Unemployment  Rates - U.S. Census Bureau
  3. HPI - Federal Housing Finance Agency 
  4. Debt-to-income ratio - U.S. Census Bureau
  5. Income Inequality/ Gini Coefficient - U.S. Census Bureau
  6. Average days to foreclosure - ATTOM data solutions

Methodology

We at Knock wanted to dive into the dynamics behind foreclosures across the country. We analyzed the states seeing the highest percent of real estate owned foreclosure transactions out of all fair market transactions for the time periods of 2010-2019 and 2021. We chose REO transactions as the measure for this analysis, to show the states who have homeowners in the most final steps of the foreclosure process, and where remedies were ultimately not found. To look into the economic conditions of the states experiencing foreclosure we collected data on their; home price index growth, unemployment rates, debt to income ratio and gini coefficient indexes to determine causality over time of foreclosure rates, and how the impact of those dynamics have changed over time. 

Knock Expands to Detroit, Giving All Homebuyers the Power of a Cash Offer

Knock’s innovative Knock Home Swap™ and Knock GO™ (Guaranteed Offer) home loans provide a more certain, convenient and cost-effective way for homebuyers to win their dream home in today’s red-hot housing market

NEW YORK (Nov. 4, 2021)  Knock, the fast-growing digital homeownership platform that turns all buyers into cash buyers, announced today its innovative home loans that bring certainty, convenience and cost savings to buying and selling homes are now available in Michigan for the first time. Beginning today, homebuyers in the Detroit, Ann Arbor, Flint and Monroe metros can use the Knock Home Swap and Knock GO™ (Guaranteed Offer) to remove the financing contingency on the home they want, giving them a leg up in the red-hot housing market and more control over their largest financial transaction.

So far this year, Knock has expanded to 51 more markets, and is now serving homebuyers in a total of 69 markets in 14 states across the country.

“With fewer homes available for sale and those that are selling fast, it’s a challenging time to be a buyer, so we are excited to give Michigan homebuyers a new way to compete and win in today’s competitive market,” said Knock Co-Founder and CEO Sean Black. “Both the Knock Home Swap and Knock GO™ provide the power of cash and are tailored for how today’s consumer shops with their phone and agent by their side. The Home Swap provides homeowners with the convenience to buy first and sell later, and Knock GO™ gives first-time homebuyers the certainty of both a guaranteed closing and appraisal protection.”

With the Knock Home Swap, a homeowner is pre-funded for a competitively priced mortgage and an interest-free bridge loan, which covers the down payment on the new home, home prep and up to six months of mortgage payments on the old house. Home Swap customers are able to sell their home on the open market for the maximum sale price without the hassle of living through repairs or showings. They also receive Knock’s 30-day closing guarantee 1,2, Home Prep Concierge and backup offer on the old house in the unlikely event that it doesn’t sell within six months. Ninety-eight percent of Knock homes sell in 90 days or less, with 90 percent selling in 30 days or less.

Designed specifically for first-time buyers and others who don’t have a home to sell, Knock GO™ combines a cash-backed, competitively priced conventional mortgage with a closing guarantee and appraisal protection, giving buyers and their agents the ability to make an offer that will stand out from other offers. Knock GO™ is backed by the company’s guarantee that it will fund the loan in the event it isn’t 100% clear to close in 30 days and help offset the difference between the sale price and the home’s appraised value3,4 at no additional cost.

Knock is partnering with agents at five local leading brokerage firms to bring its innovative home loan solutions to homeowners throughout Southeast Michigan, including The Perna Group Realtors – Keller Williams, Keller Williams|Jeff Glover and Associates Realtors, The Integrity Team and Keller Williams Paint Creek, Weichert Realty St. Clair Shores and House Want Realty.

“My goal is to provide the best opportunities and tools to my agents to service their clients at the highest level. Partnering with Knock does exactly that. It allows our agents to reduce the stress and uncertainty for our clients of being in a double payment situation while holding two mortgages, or worse, selling their home without finding one at all. Knock is a game changer,” said Michael Perna, CEO of The Perna Group Realtors – Keller Williams.

Nationwide, the Knock Home Swap and Knock GO™ are available through 270 real estate brokerage firms with over 107,000 agents in approximately 5,200 ZIP codes nationwide. Homebuyers also can learn more and see if they qualify for the Knock Home Swap or Knock GO™ at knock.com.

1Mortgage loans offered by Knock Lending LLC. NMLS 1958445. Equal Housing Lender . For licensing information go to: www.nmlsconsumeraccess.org.

2Terms and conditions apply. See https://knock.com/closing-guarantee for more information regarding the Knock Closing Guarantee.

3Terms and conditions apply. See knock.com/guaranteed-offer/terms for more information regarding the Knock GO™ (Guaranteed Offer).

About Knock

Knock makes home buying simple and certain by transforming all buyers into cash buyers and giving them complete control of the process from their phone. Knock’s flagship Home Swap™ product empowers consumers with a cash-like offer to buy the home they want before selling the home they have, providing the convenience of not having to live through repairs or showings in the process. Knock GO™ (Guaranteed Offer) is a cash-backed home loan solution for first-time homebuyers looking to compete in today’s hot housing market.

Launched in 2015 by founding team members of Trulia.com, Knock has raised more than $600 million in debt and equity from top-tier investors, including RRE Ventures, Foundry Group, Redpoint, Greycroft, Corazon Capital, Correlation Ventures, Great Oaks Venture Capital and FJ Labs. The National Association of Realtors®, through its investment arm Second Century Ventures, is a strategic investor in Knock, giving its 1.5 million members the ability to market Knock’s homeownership solutions to their clients. Knock currently operates in 69 markets nationwide and plans to be in over 100 markets by 2023.

Contact: pr@knock.com

Most Americans Cannot Afford a New Construction Home

New construction home prices are at unseasonable highs, as the median U.S. new home price of $390,900 in August remained commensurate with July’s record. This increase in pricing is outpacing the national median household income, which has decreased 2.9% from 2019 to 2020 to $67,521 – a decline seen for the first time since 2011, with only modest rebounds so far in 2021, according to preliminary forecasts.1 

According to Fannie Mae’s Chief Economist, Doug Duncan; “Affordability remains a challenge, even with mortgage rates near historic lows; if the pace of income growth doesn’t keep up with inflation and interest rates rise more than expected, we’d expect housing activity to slow from our current projections”.

In September, Fannie Mae lowered its 2022 new construction home sale expectations from 846,000 units to 789,000 amidst the building supply constraints and record home price issues the nation is currently facing, foreshadowing an even longer recovery from years of underbuilding.2  

While facing a shortage of housing supply at all price levels, this gap is expected to disproportionately affect lower-income earners in 2022. Households in the bottom 25th percentile of income are estimated to face a shortage of 2.6 million units versus those above the median income expected to face a gap of 650,000 units.2 

To put things in perspective, the minimum total household income for a mortgage on a $390,900 home, with a 6% down payment, typically falls just under $80,000. At this level, nearly 60% of U.S. households would not be eligible. Knock analyzed the top metro areas with the highest percentage of new construction sales to dive deeper into this affordability issue. 

Based on our analysis, we found the following metro areas at both ends of the affordability spectrum based on required household income for the median new construction mortgage in their area;

When comparing the price paid for a new home, we found the average premium of new construction to existing resale to be $68,454. 

According to the National Association of Home Builder’s 2021 survey What Home Buyers Really Want, 60% of buyers prefer a new construction home over an existing home.3 For first-time homebuyers in particular, who often struggle with saving for a down payment and are most impacted by rising home prices, this makes affording a new construction home more difficult a task than it is for existing homeowners looking for their next home. During the first 10 months of 2021, first-time home buyers’ average purchase price was $229,000.4 A price range that makes up less than 16% of the new construction market as of August, for a population that makes up nearly a third of all buyers.5

Based on median household income, the average time it takes to save for a down payment on a new construction home for first-time homebuyers is 15 years.

These exorbitant savings periods reflect the inability of the average first-time homebuyer to obtain homeownership in many of the pricier metros.

Furthermore, affordability concerns persist at a time when the share of smaller inventory homes built by new construction builders are at all-time highs, according to Zelman & Associates’ research.Homes built in the 0-2,249 square foot range have reached 60% of all homes built in the 10th largest markets in 3Q21, a 35% increase from 1Q15. In terms of the average square footage of single-family housing starts, a decline from 2015 to the present has occurred from 2,689 to 2,477 square feet in 2020 amidst surging new home prices. This trend has begun to reverse in 2021, showing growth to 2,513 square feet and, is projected to continue into 2023. The move to larger homes could further impact the average home price over time.

In conclusion, the current supply chain and affordability issues surrounding new construction challenge pre-Covid notions of the relief to the housing market new construction homes bring. If new construction homes do not align with the buying power of the average consumer, benefits of this additional inventory are felt disproportionately throughout the country and are attenuating a much smaller portion of the building gap issue than previously thought. Moving forward, we expect to see a push back in median new construction home pricing as the reality of homeownership of the majority becomes simply too far out of reach.   

Methodology Section 

To determine new construction affordability in the major metro areas across the country, Knock first pulled the top 50 metros by population size and analyzed the average % of new construction transactions. We found that number to be 8%, and from there cut any metro areas that fell below that to control for increased pricing due to limited availability. We reverse calculated the required income on a mortgage that assumed a 6% down payment, as well as a 3.04% interest rate for a 30-year mortgage. Once that number was determined, we were able to use the ACS median household income figures per income bracket to determine the % of households in that metro area that could not afford a new construction home. The average savings period for FTHB was calculated by taking the median HH income and calculating a 2.4% savings rate per year until the average downpayment was reached.

Sources

  1. Seeking Alpha. “Median Household Income in June 2021.” seekingalpha.com, Seeking Alpha, 4,August, 2021, https://seekingalpha.com/article/4444965-median-household-income-in-june-2021. Accessed 2021.
  2. Volkova, Maria. “Fannie Mae cuts origination forecast for 2022.” housingwire.com, HousingWire, 20,September ,2021, https://www.housingwire.com/articles/fannie-mae-cuts-origination-forecast-for-2022/.
  3. Quint, Rose. “Home Buyers’ Preferences Shift Towards New Construction.” eyeonhousing.org,NAHB, 1 April, 2021, https://eyeonhousing.org/2021/04/home-buyers-preferences-shift-towards-new-construction/. Accessed 2021.
  4. Carroll, Peter. “Who is Most Affected by the Housing Supply Gap?” corelogic.com, Core Logic, 28, April, 2021, https://www.corelogic.com/intelligence/who-is-most-affected-by-the-housing-supply-gap/. Accessed 2021.
  5. National Association of Realtors. “2021 Home Buyers and Sellers Generational Trends Report.” NAR.com, National Association of Realtors Research Group, 16 March 2021, https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf. Accessed 2021.
  6. Zelman & Associates. “Proprietary Look at Builder Price Points -tug of War to Ensure Between Preference and Affordability.” Zelmanandassociates.com, Zelman & Associates, 7 October 2021. Accessed 2021.
  7. Top 10 Housing Markets with Median Down Payments. Christine Stricker, 2020. attomdata.com, https://www.attomdata.com/news/market-trends/figuresfriday/top-10-u-s-housing-markets-with-highest-median-down-payments-in-q3-2020/.

You can find the full press release here.

Knock Launches Knock GO™(Guaranteed Offer), Making Homebuyers Cash Buyers

Homebuyers in 65 markets can now turn to Knock to get a competitive home loan to make a non-contingent, cash-backed offer to win the home of their dreams

NEW YORK (Oct. 4, 2021) — Knock, the fast-growing digital homeownership platform that brings certainty and convenience to buying and selling homes, announced today the launch of Knock GO™ (Guaranteed Offer), its innovative cash-backed home loan solution for first-time homebuyers looking to compete in today’s hot housing market. With Knock GO™ homebuyers in 65 markets nationwide can now make a non-contingent, cash-backed offer to win their dream home with the added assurance Knock is there to bridge the gap should the appraisal come in below the sale price.

Designed specifically for first-time buyers and others who don’t have a home to sell, Knock GO™ combines a cash-backed, competitively priced conventional mortgage with a closing guarantee and appraisal protection, giving buyers and their agents the ability to make an offer that will stand out from other offers. Knock GO™ is backed by the company’s guarantee that it will fund the loan in the event it isn’t 100% clear to close in 30 days and help offset the difference between the sale price and the home’s appraised value1,2  at no additional cost.

“In today’s housing market many buyers are losing their dream home to offers that waive financing, appraisal and other contingencies. Both buyers and sellers need to be guaranteed that their transaction is going to close, and Knock GO™ provides the certainty it will,” said Knock Co-Founder and CEO Sean Black. 

Founded in 2015,  Knock’s flagship Home Swap™ empowers homeowners with the certainty of a non-contingent offer to buy the home they want before selling the house they have for top dollar, giving them the convenience of not having to live through repairs or showings or sell to investors at a discount.  With the introduction of Knock GO™, Knock is expanding its reach to all homebuyers whether they are looking to both buy and sell or just buy a home. 

Similar to Knock Home Swap™, Knock GO™ is a fully digital experience available through more than 250 leading brokerage firms with over 100,000 agents in 65 markets nationwide. Homebuyers also can learn more and see if they qualify for a Knock GO™home loan at knock.com/go

About Knock

Knock is on a mission to make homeownership simple and certain. Whether you are a homeowner looking to buy a new home before selling your current home or a first-time buyer, Knock offers a fully digital end-to-end solution that brings certainty, convenience and cost-savings to the often stressful and complicated process of homeownership. The Knock Home Swap™ empowers a customer to buy their new dream home before selling their old one. Knock GO™ (Guaranteed Offer) provides homebuyers with the best features of a cash offer in a competitive home loan to win the home they want without paying more. 

Launched in 2015 by founding team members of Trulia.com, Knock has raised more than $600 million in debt and equity from top-tier investors, including RRE Ventures, Foundry Group, Redpoint, Greycroft, Corazon Capital, Correlation Ventures, Great Oaks Venture Capital and FJ Labs. The National Association of Realtors®, through its investment arm Second Century Ventures, is a strategic investor in Knock, giving its 1.5 million members the ability to market Knock’s homeownership solutions to their clients. Knock currently operates in 65 markets nationwide and plans to be in over 100 markets by 2023.

1Terms and conditions apply. See knock.com/guaranteed-offer/terms for more information regarding the Knock GO™ (Guaranteed Offer).

2Mortgage loans offered by Knock Lending LLC. NMLS 1958445. Equal Housing Lender . For licensing information go to: www.nmlsconsumeraccess.org.
Contact: pr@knock.com