Mortgage Delinquency Rates Tied to Economic Factors and CRE Distress

Mortgage delinquency rates are a significant concern for the economy, and they're often tied to larger economic factors. The recent CRE distress has led to a surge in mortgage delinquencies.

According to data, a significant portion of mortgage delinquencies can be attributed to job losses and reduced income. In areas with high unemployment rates, homeowners struggle to make mortgage payments.

The current economic climate has led to a decline in property values, making it even harder for homeowners to sell their properties or refinance their mortgages. This, in turn, contributes to a rise in mortgage delinquencies.

In addition, the ongoing CRE distress has resulted in a significant number of commercial properties being foreclosed, further exacerbating the mortgage delinquency issue.

Mortgage delinquency rates have been on the decline, with the share of home mortgages that are notably delinquent falling to 5.88% during Q2'13. This is down from 7.31% one year earlier and below the 9.67% peak in Q4'09.

The improved job market and lower interest rates are helping home buyers service mortgage debt. The decline in delinquency rates is due to the improved debt-servicing ability of both prime and subprime borrowers.

In fact, the percentage of conventional prime borrowers that are in foreclosure or 90 days or more delinquent fell to 3.50% of the total from 4.98% one year ago. At the beginning of 2010, the rate peaked at 7.08%.

Here's a breakdown of delinquency rates for different types of loans:

The non-seasonally adjusted seriously delinquent rate, which includes loans 90 days or more past due or in the process of foreclosure, decreased 9 basis points to 1.52% from the prior quarter. This is the lowest level since 1984.

Some states are experiencing an increase in mortgage delinquency, with Vermont having the highest rate at 7.1% and an increase of nearly 24% in Q1 2024 compared to Q4 2023.

Mortgage delinquency rates are influenced by various economic factors, including unemployment rates. In areas with high unemployment, homeowners are more likely to struggle with mortgage payments.

A 6% unemployment rate in a particular region can lead to a 1.5% increase in mortgage delinquency rates. This is because people without jobs have less income to put towards their mortgages.

Home prices and interest rates also play a significant role in mortgage delinquency rates. As home prices rise, homeowners may find themselves "upside down" on their mortgages, owing more than their homes are worth.

A 1% increase in interest rates can lead to a 0.5% increase in mortgage delinquency rates. This is because higher interest rates make it more expensive for homeowners to make their mortgage payments.

Intriguing read: What Is the Current Interest Rate for Commercial Mortgages

CRE Distress is a significant issue in the real estate market. The CRE Distress Tracker has hit a decade-high of $107B, which is a staggering amount.

Office properties have the largest outstanding total distress. This is a concerning trend, as it indicates a potential bubble in the office market.

Multifamily properties may have a larger distress issue than it appears, although the exact figure is unknown. This uncertainty makes it difficult to assess the true extent of the problem.

The CRE Distress Tracker's findings suggest that the real estate market is facing a significant challenge. This is likely to have a ripple effect on the broader economy.

A different take: Us Housing Market Mortgage Rates Surge