The American housing market has entered a fascinating — and somewhat concerning — phase in 2025. According to ATTOM’s latest U.S. Foreclosure Market Report, the number of bank-owned properties, also known as REOs (Real Estate Owned), surged by 41% year over year. That’s a sharp reversal from the relatively calm conditions seen over the past few years when government protections, strong equity gains, and historically low interest rates helped keep foreclosures in check.
At first glance, this spike might sound like a sign of crisis brewing — but the reality is more nuanced. While a 41% increase certainly turns heads, industry experts are quick to point out that overall foreclosure and REO levels are still below historical averages. What this trend does reveal, however, is that the market is adjusting to a new post-pandemic reality: higher borrowing costs, slower home price growth, and rising financial pressure on homeowners.
Let’s break down what’s really driving this surge, how it fits into broader housing market dynamics, and what buyers, investors, and homeowners should be watching as we close out 2025.
What Exactly Are Bank-Owned Properties?
Before we dig into the numbers, it helps to clarify what “bank-owned” actually means.
When a homeowner fails to make their mortgage payments, the lender may begin the foreclosure process, which can take months or even years depending on the state. If the property doesn’t sell during a foreclosure auction, ownership transfers to the bank — and it becomes an REO (Real Estate Owned) property.
Banks typically don’t want to be in the real estate business. These properties represent non-performing assets, meaning they cost the bank money to maintain but generate no income. That’s why banks often list REOs below market value to sell them quickly. For investors and homebuyers willing to take on a bit of risk, these properties can be opportunities — but for the broader market, a spike in REOs can signal stress beneath the surface.
The 41% Jump: Where the Numbers Come From
The data comes primarily from ATTOM Data Solutions, a real estate analytics firm that tracks foreclosure activity nationwide. In August 2025, ATTOM reported that more than 4,000 U.S. properties were repossessed by lenders, marking a 41% year-over-year increase.
That’s the biggest jump in REO completions seen in several years. However, it’s worth noting that even with this spike, total foreclosure activity remains below pre-2019 levels. The market is normalizing after several years of artificial suppression — not collapsing.
Industry analysts at BiggerPockets and PR Newswire have echoed the same trend, noting that foreclosure completions (the final stage that turns a distressed home into a bank-owned property) are accelerating across multiple regions, particularly in states like Texas, North Carolina, Florida, and California.
Why Bank-Owned Properties Are Rising So Fast
The surge in REOs isn’t caused by a single event. It’s the result of several overlapping economic and policy factors that have gradually converged. Let’s explore the main reasons behind the 41% increase.
1. More Foreclosures Are Finally Being Completed
During the pandemic, a mix of government moratoria, forbearance programs, and lender leniency effectively froze foreclosures across the country. Even after those protections expired, a backlog of cases clogged court systems and slowed down repossessions.
Now, in 2025, that pipeline is clearing. Thousands of properties that began the foreclosure process one or even two years ago are finally completing the process and becoming REOs. In other words, the jump in bank-owned homes doesn’t necessarily mean there’s a sudden wave of new defaults — it’s that older foreclosures are now catching up.
As one housing market analyst put it, “We’re seeing the tail end of a delayed cycle. These are not fresh crises — they’re the leftovers of earlier distress.”
2. Rising Interest Rates Have Put Pressure on Homeowners
The Federal Reserve’s rate hikes have had a profound ripple effect throughout the economy. Mortgage rates that hovered around 3% in 2021 are now sitting in the 7–8% range for many borrowers. For homeowners with adjustable-rate mortgages (ARMs) or those who refinanced with variable terms, monthly payments have climbed sharply.
This increase has been particularly painful for households whose incomes haven’t kept pace with inflation. Combined with rising insurance costs and property taxes, many homeowners have found themselves in a financial squeeze — especially in areas where home values have leveled off or declined slightly.
The result? More delinquencies, more defaults, and eventually, more properties reverting to bank ownership.
3. Home Prices Are Cooling, Reducing the Safety Net of Equity
One of the biggest buffers against foreclosure in recent years has been record-high home equity. When home values soared between 2020 and 2022, even struggling owners could often sell their property for a profit and avoid foreclosure altogether.
But in 2025, that safety net is thinning. According to CoreLogic and Redfin data, home price growth has slowed or even reversed in several markets. With fewer bidding wars and longer listing times, some owners who bought near the top of the market now owe more than their homes are worth.
Once equity disappears, the options disappear with it. Homeowners who can’t refinance or sell end up trapped — and many ultimately lose their properties to the bank.
4. Household Debt and Inflation Are Taking Their Toll
Inflation has cooled somewhat in 2025 compared to the peaks of 2022–2023, but it’s still elevated enough to erode purchasing power. At the same time, consumer debt — from credit cards to auto loans — has hit record levels.
For many families, the monthly budget has simply become unsustainable. A slight drop in income, a job loss, or an unexpected expense can be enough to trigger missed mortgage payments.
Reports from lenders suggest a growing number of homeowners are falling behind by 60 days or more, and while not all delinquencies end in foreclosure, the trend adds to the pressure pipeline feeding REO growth.
5. Lenders Are Moving More Aggressively
After years of leniency, banks are becoming less patient with non-performing loans. During the pandemic, most major lenders bent over backward to avoid foreclosures, partly due to political pressure and partly because home values were still rising.
But now, with the economy stabilizing and asset values flattening, lenders are returning to normal recovery strategies. Instead of repeatedly modifying loans or delaying foreclosure sales, they’re allowing the process to complete — which naturally increases the count of bank-owned properties.
Some analysts believe this shift reflects a return to business as usual rather than an aggressive or predatory move. Banks are simply clearing their books and managing risk.
6. Regional Variations Are Exaggerating the National Numbers
The 41% increase is a national average, but some states are driving the bulk of the rise. Data from ATTOM and BiggerPockets show that Texas, Florida, North Carolina, and Illinois have seen particularly sharp jumps in foreclosure completions.
These states also happen to have large populations, booming real estate markets, and relatively fast foreclosure processes. When a few big states experience a surge, it significantly skews the national percentage.
On the other hand, states like New York and California, where foreclosures take longer to process due to judicial oversight, may not feel the full effect until later in 2025 or 2026.
7. Faster Processing and Reduced Backlogs
Another factor driving the numbers is simply efficiency. Many courts and lenders have finally worked through the pandemic-era backlog of delayed cases. The foreclosure process, once bogged down for months, is now moving faster in several regions.
That means more cases are reaching completion — not necessarily more defaults, just more throughput. The higher the completion rate, the more properties officially transition to bank ownership, even if total foreclosure starts remain stable.
8. Investor Behavior and Market Shifts
There’s also a subtler dynamic at play involving real estate investors. Over the past few years, institutional investors, private equity funds, and small-scale flippers snapped up distressed properties at auction.
But with financing costs now much higher and margins thinner, fewer investors are bidding on foreclosure sales. When a property fails to sell at auction, it reverts to the bank as REO.
In other words, the same distressed homes are still appearing, but now more of them are ending up on banks’ balance sheets instead of private investors’ portfolios.
Are We Heading for Another Foreclosure Crisis?
Despite the sharp increase in bank-owned properties, most housing experts agree that we are not witnessing a repeat of 2008.
Back then, millions of borrowers were overleveraged, lending standards were weak, and home values collapsed almost overnight. In contrast, today’s market is underpinned by much stricter lending practices and a healthier overall economy. Unemployment remains relatively low, and most homeowners still have significant equity cushions.
Safeguard Properties, a major firm that tracks REO trends, noted in its mid-2025 update that while REO activity is rising, it remains “historically low” by long-term standards. The same report emphasized that the recent surge represents a normalization of foreclosure activity, not a systemic breakdown.
However, there’s no denying that certain pockets of the market are feeling pain. Homeowners who bought at peak prices, used adjustable-rate loans, or live in regions with stagnant job growth are more vulnerable.
What This Means for Buyers and Investors
For buyers, particularly first-timers or those looking for deals, the increase in bank-owned properties could present new opportunities. REOs often sell below market value, and banks are typically motivated to liquidate them quickly.
That said, purchasing a bank-owned home isn’t as simple as buying a traditional listing. Many REOs require significant repairs or updates, and buyers may need to navigate additional paperwork and longer closing timelines. Still, for investors and rehabbers with the right resources, this environment offers potential.
For real estate agents and brokers, it’s also a reminder to diversify expertise. Those familiar with distressed sales, auctions, or lender negotiations will likely see more business in the coming year.
What It Means for Homeowners
For homeowners, the message is more cautionary. The rise in REOs is a signal that financial stress is quietly building, even if it hasn’t reached crisis levels.
If you’re struggling to make payments, it’s important to act early — contact your lender, explore forbearance options, or consider refinancing if possible. Once a loan enters serious delinquency, the options narrow quickly.
The good news is that lenders today are generally more open to negotiation than they were 15 years ago. Foreclosures are expensive and time-consuming, so banks often prefer to find solutions that keep borrowers in their homes.
The Bigger Picture: A Market in Transition
The 41% jump in bank-owned properties isn’t just a housing story — it’s a reflection of the broader economic transition happening across the country.
The post-pandemic boom, fueled by cheap money and rampant demand, is giving way to a more balanced, slower-moving market. Rising interest rates have cooled speculation, inflation has stretched household budgets, and the easy credit environment of the early 2020s has tightened.
The housing market is recalibrating to these new realities. And while that process is sometimes painful, it’s also a necessary correction toward sustainability.
Looking Ahead
What happens next will depend on several key factors:
- Interest Rates – If mortgage rates stabilize or decline in 2026, delinquency rates could ease as refinancing becomes viable again.
- Home Prices – If prices continue to soften, we might see more underwater borrowers — which could extend the REO trend into 2026.
- Employment Trends – The job market remains the biggest variable. As long as unemployment stays low, a large-scale foreclosure wave remains unlikely.
- Policy Actions – Government or lender-led relief programs could slow the rate of new bank-owned properties entering the market.
Most experts expect REO activity to continue rising modestly into early 2026 before leveling off. In that sense, the current spike might represent the peak of the catch-up phase rather than the beginning of a new crisis.
Final Thoughts
A 41% increase in bank-owned properties is significant — but it’s not a sign that the housing market is collapsing. Instead, it’s evidence that the system is resetting after several years of artificial suppression.
Behind the numbers are familiar stories: homeowners grappling with higher payments, lenders clearing backlogs, investors stepping back, and courts catching up on delayed cases. Together, these forces are reshaping the distressed property landscape.
For everyday buyers, it means more opportunities — but also more need for caution. For homeowners, it’s a reminder to stay proactive and informed. And for the real estate industry as a whole, it’s a signal that the market’s long-awaited normalization is well underway.
As 2025 winds down, the question isn’t whether foreclosures and REOs will rise — they already have. The question is whether the market can absorb that increase without tipping into instability. So far, the evidence suggests it can.
The story of 2025’s housing market, then, isn’t one of crisis — but of correction.
