The U.S. housing market is showing signs of strain as mortgage delinquencies tick upward, mirroring broader economic challenges. Recent data from the Mortgage Bankers Association (MBA) reveals a subtle yet concerning trend in homeowner financial health.
By the end of the second quarter, delinquency rates for residential mortgages climbed to 3.97 percent. This marks a three basis point increase from the previous quarter and a more substantial 60 point jump from the same period last year. While these numbers might seem small, they reflect thousands of homeowners struggling to keep up with their payments.
Marina Walsh, MBA’s vice president of industry analysis, provides context: “While delinquencies are still low by historical standards, the recent increase corresponds with a rising unemployment rate, which has historically been closely correlated with mortgage performance.”
BREAKING: Mortgage demand in the US has officially dropped again in August, near its lowest level since 1995, according to Reventure.
Mortgage applications to buy a house in the US declined by 8% year-over-year in August.
Furthermore, mortgage demand is current down ~50% from… pic.twitter.com/rKhwsNHCFc
— The Kobeissi Letter (@KobeissiLetter) August 15, 2024
Indeed, unemployment has been on an upward trajectory, rising from 3.4 percent in January 2023 to 4.3 percent in July 2024. This climb in joblessness appears to be pulling mortgage delinquencies along with it.
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A closer look at the data reveals an interesting pattern. Walsh notes that the entire 60-point increase in overall delinquencies from last year stems from mortgages in the early stages of default – those unpaid for 60 days or less. It’s as if we’re seeing the first ripples of a potential wave.
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Not all states are affected equally. Mississippi leads the pack with the largest quarterly increase in delinquency rates, followed by Louisiana, Indiana, Ohio, and West Virginia. This regional variation suggests that local economic factors play a significant role in homeowner financial stability.
Despite these troubling signs, there’s a silver lining. Walsh points out, “Seriously delinquent loans—those loans 90 days or more delinquent or in foreclosure—fell to their lowest levels since 1984.” This decline is attributed to mortgage servicers’ efforts to help at-risk homeowners through various loan workout options.
Freddie Mac offers additional perspective, noting that overall loan delinquencies, including non-mortgage debts, actually dipped to “historic lows” during the pandemic. This was largely due to low interest rates and government stimulus measures. However, as these supports have waned and interest rates have risen, delinquencies have begun to climb.
Interestingly, mortgage delinquencies haven’t risen as sharply as other forms of debt. Credit card and auto loan delinquencies have surpassed their pre-pandemic levels, while mortgage delinquencies remain below.
Freddie Mac attributes this difference to the nature of mortgage debt: “92 percent of U.S. household mortgages have fixed rates, while most auto and credit card debt is variable rate.”
Looking ahead, industry experts anticipate a gradual increase in foreclosure activity. Daren Blomquist, vice president of market economics at Auction.com, notes that while the risk of a rapid spike in delinquencies is low, there are signs of homeowner stress.
Joe Cutrona, chief business officer of Auction.com, adds some context: “Completed foreclosure volumes so far this year have remained at half the 2019 levels, mostly due to more robust loss mitigation options coming out of the pandemic.”
Data from ATTOM, a real estate information company, supports this view. In the first half of 2024, foreclosure activity was down 4.4 percent compared to the previous year, marking the fourth-lowest level since 2008.
Rob Barber, CEO of ATTOM, suggests this could indicate “a potential stabilization in the housing market.”
However, some states are bucking this trend. South Dakota, North Dakota, Kentucky, Massachusetts, and Idaho saw the highest increases in foreclosure activity compared to last year.
Meanwhile, New Jersey, Illinois, Florida, Nevada, and South Carolina had the highest overall foreclosure rates.
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The housing market remains a key indicator of broader financial health. While current trends don’t point to an imminent crisis, they do suggest rough waters ahead for many.
