An analysis of the health of the mortgage market is done by measuring early-stage delinquency rates and transition rates indicating which stage of delinquency the market is headed for. Knowing what the mortgage market is doing and where it is heading is important to everyone in the real estate market.
We had a look at the loan performance trends of 2018. One of the best reports out there is put out by CoreLogic. In their Loan Performance Insights Report they found that delinquency rates are up in natural disaster areas but down everywhere else in the USA.
September marked the lowest rate of serious delinquency and foreclosures in the past 12 years. In comparing the last 9 months of 2018 with the last 9 months of the past 5 years, the delinquency rate has declined every month of every year.
Natural Disasters and the Mortgage Market
When natural disasters occur, homeowners with mortgages are often unable to keep up with their payments. The effects of this year’s natural disasters are evident in looking at the delinquency data.
Back in May of 2018, Hawaii’s Mount Kilauea erupted and the area was devastated. Here, delinquency went up by 10% while the rest of Hawaii’s delinquency rate went down by 4%. The Carr Fire in California had the same effect, but as a larger natural disaster, the impact on delinquency was higher. The Redding metro area had a 19% increase in 30-day delinquencies from August to September alone. This was the biggest spike since the foreclosure crisis began 2006. It also happened in North Carolina. In major metro areas through the state, the 30-day delinquency rate doubled after Hurricane Florence hit.
The Mortgage Market and the Rest of the United States
In the remaining areas of the United States, not hit by natural disasters, the overall 30-day delinquency rate dropped 0.6%. This happened in the time period from September 2017 to September 2018.
In looking at Serious Delinquency and foreclosure rates where natural disasters have not occurred, the rates have steadily declined across the nation. This is mainly due to the labor market improving and home prices rising.
Serious Delinquency Rates
In 2018 there were no states in the U.S. that experienced serious delinquency. Serious delinquency is defined as loans that are at least 90 days overdue. In looking at each state, CoreLogic found that Alaska remained the same as last year and every other state in the country saw a decline in serious delinquency rates.
When looking at the level of the metro areas themselves, 23 U.S. cities remained at the same rate as last year. Every other city in the country saw a decline in serious delinquency rates.
The Bottom Line
CoreLogic reports there has also been a rise in high loan-to-value and high debt-to-income lending. This heightens the risk of a significant increase in loan default. Especially if the economy slips into recession or home prices start to decline.
As of right now, continued improvement in mortgage performance is a good indicator for the Mortgage Market’s good health in 2019.