Foreclosure Rates are the Lowest on Record
In the second quarter of 2023 (ending in June), the Mortgage Bankers Association (MBA), reports that delinquency rates fell to a record low due to a strong job market and low interest rates prevailing for most homeowners. (Remember, most homeowners locked in their mortgage when rates were much lower than they are now.)
Delinquency rates fell to 3.37% at the end of the second quarter, according to the Mortgage Bankers Association's National Delinquency Survey, their lowest since the MBA began collecting data in 1979 and down from 3.64% year-on-year.
Loans which are seriously delinquent (90 days or more past due or in the process of foreclosure) fell to their lowest rate in 23 years – 1.61%.
Economists have been watching mortgage delinquency rates closely for signs of a weakening economy since the Federal Reserve raised rates for the first time since 2018. Those rate raises have increased the cost of borrowing across the board.
Due to the strong job market and wage growth, the MBA said that many borrowers have been able to withstand surging mortgage rates. And as stated earlier most homeowners are paying far lower rates than current mortgage rates.
In fact, today, it’s estimated that eight in ten outstanding loans outstanding feature a rate of below 5%, far below the MBAs most recent contract rate above 7%. Furthermore, more than six in ten hold rates of 4% or less.
And while the share of those holding the lower rates is declining, many homeowners are choosing to remain in their home rather than assume a new loan at the elevated prevailing rates which are near a 22-year high.
But despite this good news, there are wrinkles. The delinquency on loans for low-income and first-time buyers edged up 10 basis points to 8.95%.
Secondly, the National Association of Realtor released a report this month showing that the median home price in the second quarter fell 2.4% year-on-year to $406,000, albeit with significant variations nationwide.
“Home sales were down due to higher mortgage rates and limited inventory,” said NAR chief economist Lawrence Yun. “Affordability challenges are easing due to moderating and, in some cases, falling home prices, while the number of jobs and incomes are increasing.”