Foreclosures are climbing again. Nationally, filings in the first half of 2026 are up 21% compared to the same period last year — and the stress isn’t spread evenly. It’s concentrated in FHA and VA loans, the two programs that brought the most first-time buyers and veterans into homeownership during the pandemic years when rates were low and qualification standards felt almost easy.
That matters a lot in Phoenix. Maricopa County has one of the highest concentrations of FHA and VA originations in the country, driven by a large military and veteran population, strong in-migration of younger buyers, and a metro that made aggressive homeownership pushes between 2020 and 2023. What happens to these loan programs hits us harder than it hits Boston or Seattle.
Why FHA and VA Loans Are Under the Most Pressure
These programs exist specifically to lower the barrier to entry. Lower down payments, more flexible credit requirements, government-backed guarantees. For a lot of buyers, they’re the only path to ownership. The problem is that the same features that make them accessible also make them more fragile when the economic environment shifts.
As of recent market data, FHA borrowers carry an average loan-to-value ratio above 95% at origination. That means almost zero equity cushion going in. When prices stall or dip — and we’ve seen that in pockets of the Phoenix metro — those borrowers have nowhere to go. A job loss, a medical bill, a divorce, and suddenly they’re underwater or close enough that selling doesn’t solve the problem.
VA loans carry their own structural risk right now. The VA loan fee hike proposal advancing in Congress has already rattled some veteran borrowers who stretched their budgets assuming stable costs. Combine that with a job market that’s softened in some sectors and you get the early stages of a default wave.
A few specific stress factors driving the current spike:
- Pandemic-era forbearance has fully unwound. The grace periods are gone. Borrowers who paused payments in 2020–2021 and never quite caught up are now in formal delinquency.
- Debt load is crushing budgets. The average new-car payment is shrinking homebuyers’ purchasing power by six figures, and that same debt-to-income pressure is pushing FHA borrowers who were already at the margin into delinquency.
- Rates stayed high. Despite expectations, mortgage rates haven’t budged meaningfully, so refinancing out of a tough situation isn’t an option for most.
- Real home values have been falling. The Case-Shiller data has been quietly telling this story for months — home values have fallen in real terms for eleven straight months, erasing the equity gains that might have saved overleveraged owners.
What This Looks Like on the Ground in Metro Phoenix
I’ve been watching foreclosure activity pick up in specific zip codes — particularly in the outer East Valley and parts of the West Valley that saw aggressive appreciation in 2021 and 2022. Areas around Queen Creek, Buckeye, and Surprise attracted a lot of FHA buyers priced out of closer-in submarkets. Those were the buyers with the thinnest equity. They’re also now the buyers showing up in lis pendens filings.
The numbers aren’t 2008-level. Let’s be clear about that. In the first half of 2026, we’re looking at foreclosure starts that are elevated but still well below the historic peaks of 2009–2011. The distress is real, but it’s not systemic collapse — yet.
What makes this cycle different from 2008 is that most homeowners have equity. Conventional loan borrowers with 20% down who bought in 2019 or earlier are largely fine. The problem is concentrated in a specific cohort: low-down-payment government-backed loans originated between 2020 and 2023, in markets where prices have since plateaued or softened.
That’s a surgical problem, not a broad market implosion. But it will produce real inventory — and real opportunity for buyers who are paying attention.
What Rising Foreclosures Mean for Buyers and Investors
Distressed inventory changes the calculus. Here’s how I’d frame the opportunity and the risk right now:
- Pre-foreclosure outreach is heating up. If you’re an investor or a buyer willing to do some legwork, distressed owners often prefer a negotiated sale over a trustee’s sale. That means potential deals before the property ever hits a public auction.
- Auction inventory is rising. Maricopa County trustee sale lists have grown noticeably in 2026. More supply means less competition per property — a real shift from the frenzied bidding of recent years.
- REO is still thin, but growing. Banks are moving slowly on taking properties back, partly because of servicing bottlenecks. When REO inventory does hit the MLS in volume, expect price concessions in the 5–12% range on affected properties.
- Condition matters more now. Foreclosed homes from stressed FHA borrowers often have deferred maintenance. Budget for it. I’ve seen buyers get excited about a low purchase price and then spend $40,000 on HVAC, roofing, and electrical they didn’t account for.
For owner-occupant buyers, this environment also means you’re finally competing against fewer cash-heavy investors on lower price points. The $240,000–$340,000 range in Phoenix — historically the most competitive — is loosening slightly as distress adds supply.
What Sellers Need to Understand Right Now
If you own a home in a zip code with meaningful foreclosure activity nearby, those comps will drag on your value. It’s basic market mechanics — distressed sales pull medians down.
That doesn’t mean you can’t sell well. It means you need to be priced correctly from day one and show well against the competition, which in some cases will be bank-owned homes selling below market. If your home is clean, updated, and priced tightly, you’re not competing with the foreclosures. You’re competing for the buyer who doesn’t want to deal with a distressed property.
Sitting on an overpriced listing while foreclosure inventory builds around you is one of the costlier mistakes I see sellers make in a shifting market.
The Broader Signal
A 21% jump in foreclosure filings isn’t a blip. It’s a signal that the affordability squeeze we’ve documented for the past two years is finally producing credit casualties. FHA and VA borrowers are first because they had the least margin for error.
Watch the student loan situation too. The phase-out of income-driven repayment protections is adding monthly payment pressure to exactly the demographic that took on FHA mortgages. That’s a compounding problem, not a separate one.
The Phoenix market is durable over the long run — the population growth, the job diversification, and the infrastructure investment here are real. But durable doesn’t mean immune. Right now, the smartest move for buyers is to understand what’s driving distress in specific neighborhoods, recognize where the opportunities are, and underwrite conservatively. For sellers, it’s about pricing with clear eyes. For owners holding FHA or VA loans with thin equity, reaching out to a HUD-approved housing counselor before missing a payment is the move — not after.
The first half of 2026 is telling us something. The second half will show whether anyone listened.