U.S. Mortgage Delinquency Hits Historic Low
The U.S. witnessed an unprecedented drop in mortgage delinquency rates in the second quarter, driven by robust employment and lower interest rates on a majority of home loans. This occurred despite the significant spike in mortgage rates observed in the recent two years.
The Mortgage Bankers Association’s National Delinquency Survey reported the rates plummeting to 3.37% by the end of the second quarter. This marks the lowest since the survey's inception in 1979, a drop from 3.64% on a year-over-year basis. Furthermore, loans deemed "seriously delinquent" – overdue by 90 days or more or under foreclosure – also hit a non-seasonally adjusted 23-year low at 1.61%.
Given the Federal Reserve's notable 525 basis point rate hike since March 2022, economists have been keenly monitoring mortgage delinquency for potential weaknesses as borrowing costs have risen universally.
While many have managed to weather the storm of escalating mortgage expenses due to a sturdy job market and consistent wage growth, most homeowners enjoy interest rates considerably below those of newer loans. As of the end of 2022, real estate professionals estimated that over 80% of the existing loans had rates under 5%, significantly lower than the MBA's recent rates exceeding 7%. Additionally, more than 60% have rates of 4% or even lower.
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Even though fewer homeowners benefit from these low rates, many are staying put, avoiding new loans at the soaring rates nearing a 22-year peak.
However, the MBA highlighted that only some homeowners have managed to cope with the escalated interest rates. Specifically, the delinquency rate for loans linked with low-income and first-time purchasers, supported by the Federal Housing Administration (FHA), saw a slight uptick of 10 basis points yearly, settling at 8.95% in Q2.
On a related note, the National Association of Realtors disclosed that the median price for homes in the second quarter dipped by 2.4% year-over-year, landing at $406,000. This figure, however, does see considerable fluctuations across the nation. A combination of steeper mortgage rates and scant inventory led to declining home sales. Nevertheless, housing affordability is gradually improving with the easing of home prices in certain regions and the growth in jobs and wages.