The U.S. housing market is standing on a precarious edge, and almost no one is paying attention. Right now, over 1 million defaulted FHA mortgages are being artificially kept from foreclosure by government policies that should have ended with the pandemic. This is not just a housing problem—it's a potential economic disaster waiting to happen. If these policies continue, we risk inflating a new subprime housing bubble—one eerily reminiscent of 2008. If they suddenly end, we could see a massive surge in foreclosures that floods the market with inventory, leading to plummeting home prices and financial turmoil. Either way, the government’s intervention in the housing market is setting up a crisis that could shake not only homeowners but also the broader economy.
During the COVID-19 pandemic, mortgage relief programs were enacted to protect struggling homeowners. These policies made sense at the time—millions of Americans lost jobs overnight, and foreclosures would have been catastrophic. But instead of phasing these protections out as the economy recovered, the Biden administration continued extending them long after the pandemic ended. According to a recent Wall Street Journal report, over 300,000 seriously delinquent FHA mortgages are still being blocked from foreclosure by these outdated policies. The FHA mortgage program, which backs 7.8 million active loans, now has nearly 14% of its loans in default—a staggering number that should be setting off alarm bells. Here’s why this matters:
Artificially Low Foreclosure Rates: The government is essentially propping up borrowers who haven't made payments in months or even years. This keeps foreclosure numbers artificially low, giving the illusion of a strong housing market.
A Hidden Wave of Inventory: If these protections were lifted, 300,000 to 400,000 homes could suddenly hit the market as foreclosures or short sales. That’s a 40% increase in U.S. housing inventory—and in some regions, available homes could double or triple overnight.
Housing Prices Are Being Manipulated: With such a limited supply of homes for sale, prices remain high. But the moment these defaulted homes hit the market, we could see a dramatic price correction. Homeowners who bought at peak prices could suddenly find themselves underwater, just like in 2008. (Ed note: and this article does not address the commercial vacancy rate which is now 20% in many major cities.) (Read More)