I track Connecticut foreclosure auctions closely. I gather and analyze the data. Unlike many bidders, I can’t add value by renovating homes for a profitable flip. Because of this, the only things that matter to me are 1) the price relative to market value, and 2) the overall direction of the housing market. I created CT Property Auctions so that I could make evidence-based decisions on which properties offer the most attractive returns relative to their fair market value.
Aside from identifying potentially interesting properties, I always have to ask myself if housing as an asset class, and foreclosures in particular, offer attractive risk-adjusted returns. I thought I would share my current thinking in this piece.
Two macro data series, should they continue to deteriorate, could lead to an increase in foreclosure volume over the next 12 to 18 months. If that deterioration coincides with a decline in financial asset prices, which is increasingly plausible, the result would be more properties coming to auction at a time when competing bidders have less capital to deploy. That combination would produce lower clearing prices.
Household Spending Is Outrunning Income
The first indicator is the relationship between nominal disposable personal income and nominal personal consumption expenditures, both measured year-over-year. When spending growth exceeds income growth, households are drawing down savings to fund consumption. That is exactly what has been happening since mid-2024.
Nominal income growth has decelerated to approximately 3% year-over-year. Nominal spending growth has remained in the 4.5% to 5% range. The gap between those two numbers, roughly 1.5 percentage points, is being funded entirely by a falling savings rate, which has dropped from approximately 5% in mid-2024 to 3.6% in December 2025.
Source: BEA via FRED (DSPI, PCE). Approximate monthly values, Jan 2023 through Dec 2025.
This matters because the math constrains what happens next. Households can keep dissaving to sustain spending, but the savings rate is already near multi-decade lows and cannot fall much further. Or they can bring spending in line with income, which means nominal PCE growth drops from 4.5% to 3%. Either path is negative for the economy.
There are early signs that the second path may already be underway. The January 2026 savings rate data showed a bottoming and uptick, suggesting households may be losing their appetite to dissave in order to keep spending going. If that shift holds, it is a concerning development for an economy so critically reliant on household demand to sustain growth.
The risk is compounded by rising oil prices. With gasoline prices up roughly 70% from the start of the year following the US-Iran conflict, headline PCE inflation is likely to push above 4% in the coming months. If nominal spending growth is running at 4.5% and inflation accounts for 4% of that, real spending growth goes to zero. That is the mechanism through which an oil shock becomes a consumer recession, and a consumer recession produces mortgage delinquencies.
The Labor Market Has Deteriorated
The second indicator is nonfarm payrolls, which is the primary driver of aggregate income. The picture here has changed dramatically over the past three years, and the February 2026 benchmark revision revealed that the deterioration was worse than previously reported.
In 2023, the economy added an average of 228,000 jobs per month. In 2024, after the benchmark revision reduced the two-year total by 1.03 million jobs, the average was 119,000. In 2025, the revised data shows average monthly job growth of essentially zero, with half the months printing negative. February 2026 came in at negative 92,000, the weakest print in months. January had shown a brief rebound at positive 126,000, but the February report also revised December 2025 down to negative 17,000, a number originally reported as positive 48,000. The pattern of negative revisions has been consistent, making each month’s initial report less reliable as a signal of strength.
Source: BLS via FRED (PAYEMS). Post-benchmark revision, seasonally adjusted, month-over-month change in thousands.
Federal government employment alone is down 330,000 since October 2024, and that is an ongoing structural drag rather than a one-time adjustment.
A labor market producing zero-to-negative payroll growth cannot generate the income growth needed to support current levels of household spending, let alone the spending growth needed to sustain economic expansion.
No Fiscal Cavalry Coming
One natural question is whether government spending could offset the weakness in the private sector. The Brookings Institution publishes a tool called the Fiscal Impact Measure, which tracks how much federal, state, and local tax and spending policy adds to or subtracts from GDP growth each quarter. It is one of the most widely used gauges of whether fiscal policy is helping or hurting the economy in the near term.
According to their most recent update, fiscal policy subtracted a full percentage point from GDP growth in Q4 2025, driven by the government shutdown and declining federal purchases. For the remainder of 2026, Brookings projects the fiscal impulse to be roughly neutral: the stimulative effects of recently passed tax legislation are expected to be offset by the drag from tariffs and continued weakness in government purchases. Into 2027, the projection turns moderately contractionary as the effects of prior industrial policy spending, including the CHIPS Act and Inflation Reduction Act, begin to fade.
Meanwhile, federal government employment has declined by 330,000 since October 2024, directly reducing aggregate household income. Despite the headline attention given to spending cut efforts, actual federal outlays rose by $300 billion last fiscal year and the deficit was essentially unchanged. Congress rejected most of the proposed discretionary cuts. The fiscal drag is not coming from meaningful spending reductions. It is coming from tariffs acting as a de facto tax increase on consumers, the loss of federal payrolls, and the natural expiration of investment incentives that had been supporting economic activity.
The net effect is that there is no government backstop for household income over the next 6 to 12 months. The fiscal impulse is neutral at best and mildly contractionary at worst, and that forecast does not yet fully account for the economic impact of the oil shock. Households are on their own.
The Foreclosure Implications
Each of these three dynamics feeds the foreclosure pipeline. Household spending is outrunning income, which means the savings buffer that allows homeowners to weather a disruption is thin and getting thinner. The labor market is no longer generating the job and wage growth needed to replenish that buffer. And there is no fiscal offset on the horizon to compensate for either of those weaknesses.
The early evidence is already visible in delinquency data. The mortgage delinquency rate rose to 4.26% in Q4 2025, up 27 basis points from the prior quarter. FHA delinquencies hit 11.52%, the highest since 2021. The NY Fed reports that 90-plus-day delinquency rates in the lowest-income zip codes have risen from 0.5% in 2021 to approximately 3.0% today. These delinquencies are the upstream input to foreclosure filings, and the pipeline takes 6 to 12 months to flow through to auction inventory. If the macro picture continues to deteriorate, the volume of properties reaching auction should increase meaningfully.
On the demand side, the same forces that push more properties into foreclosure also weaken the buyer pool. A softening labor market and strained household finances reduce confidence and risk appetite. If those conditions produce a decline in equity markets and other financial asset prices, the wealth effect works in reverse. Bidders at foreclosure auctions are typically investors deploying liquid capital. A market decline reduces that capital base, reduces their willingness to bid aggressively, and reduces the number of participants at each auction.
The combination of more inventory and fewer bidders with less capital is how clearing prices fall. That is the setup I am watching for.
The views expressed here are my own and do not constitute investment advice. Foreclosure auctions involve significant risk including loss of capital. Past auction results do not guarantee future outcomes. Do your own research before making any investment decision.