Foreclosure Inquiries Hit 5-Year High — Here’s Why and How It Could Affect the Housing Market

Foreclosure inquiries in the United States have been surging as more Americans fret about the potential impact of tariffs on the economy — and the U.S. housing market could suffer because of it.

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Here are more details on the growing foreclosure inquiries and how that could affect the housing market.

‘Homes Are at Risk’

Legal requests related to foreclosures are at their highest level since April 2020, according to a recent report from LegalShield, an Oklahoma-based provider of legal guidance and services. In a May survey of 802 U.S. adults, LegalShield found that more than 70% of homeowners and prospective buyers worry that tariffs and a potential recession could disrupt their housing plans.

LegalShield also reported a “marked drop” in home purchase and housing construction inquiries. This could foreshadow a slowdown in the housing market.

“The hard data from consumers calling lawyers matches their fears about the economy: their homes are at risk and things may get worse,” LegalShield CEO Warren Schlichting said in a press release shared with GOBankingRates. “The other concerning finding is a drop in consumers asking for help to buy a home and a decline in questions from builders.”

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Why Are Foreclosure Fears Rising?

The LegalShield survey highlighted a “convergence of pressures,” according to Matt Layton, the company’s senior vice president of consumer analytics.

“Buyers from the homebuying surge a few years ago want help with rising insurance premiums, property tax reassessments, and adjustable-rate mortgage resets,” Layton said. “People are reaching out to LegalShield provider lawyers to save their homes, and they’re scared of the next shoe to drop in the economy.”

According to LegalShield, May saw the lowest level of legal activity related to housing sales since July 2023. That was also when the Federal Reserve raised interest rates most recently, LegalShield noted. Overall, the survey cited mortgage rate uncertainty, elevated home prices and inventory challenges as impacts on buyers and sellers.

LegalShield’s report aligns with similar research from other sources. For example, climate-risk research group First Street found that the risk of foreclosures is rising partly because of the impact of weather-related damage to homes, MarketWatch reported. This problem is exacerbated by the fact that roughly 1 in 7 U.S. homes are uninsured, per LendingTree.

How Is the Housing Market Impacted?

Rising foreclosures can impact the housing market in a couple of ways, according to a Federal Reserve Bank of Cleveland report published in 2010, just on the heels of the housing and financial meltdown that led to the Great Recession.

The first reason is that foreclosures add to the housing supply. If there’s more supply, home values could fall. The second is that homeowners who’ve faced foreclosure are considered credit risks who might not qualify for future home loans, which reduces the number of potential buyers.

The best way for homeowners to prevent foreclosure is to get legal advice long before they really need it, according to Schlichting.

“Perhaps now more than ever, consumers need to consider how to protect themselves and their asset if they are able to buy a home in the midst of these economic headwinds,” he said. “Instead of calling a lawyer after something goes wrong, smart homeowners are starting to get legal advice upfront — before they buy, before they renovate, before problems become expensive disasters.”

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This article originally appeared on GOBankingRates.com: Foreclosure Inquiries Hit 5-Year High — Here’s Why and How It Could Affect the Housing Market