U.S. Mortgage Delinquencies Spike Higher in Q4 2016
Is This a Warning Sign?
[Taken from the March 2017 issue of The Campbell Real Estate Timing Letter]
After hitting 10-year lows in Q3 2016, the Mortgage Bankers Association (MBA) reported that the delinquency rate for mortgage loans on one-to-four residential properties increased in Q4 2016 to a seasonally adjusted rate of 4.80% of all loans outstanding – up from 4.52% in the previous quarter … and even more importantly, up from 4.77% a year ago.
As potentially troubling as it is, that year-over-year rise was only for early stage mortgage delinquencies – which are loans that are at least one payment past due. Nor does the year-over-year rise include loans that were in the process of foreclosure, which of course is one of the key Vital Sign indicators I use for timing real estate markets.
However the below chart gives us a much broader view of U.S. mortgage delinquencies.
As shown above, the serious delinquency rate – i.e. the percentage of all mortgage loans that were 90 days or more past due or in the process of foreclosure – was 3.13% in the fourth quarter. While this 3.13% figure was up from 2.96% in the previous quarter, it was down from 3.44% from last year. And as I always remind you, year-over-year statistics are what we rely for successfully timing real estate markets.
Thus, while the overall delinquency rate in the fourth quarter increased for all loan types – FHA, VA, and conventional – the year-over-year trend for this key indicator is still down.
While rising mortgage delinquencies are always a precursor to rising mortgage defaults, they do not always result in foreclosure actions.
So if we only look only at the percentage of loans in which foreclosure actions were started in the fourth quarter, the figure was 0.28%. This was down from 0.30% in the third quarter, and down from 0.36% in the same quarter of the previous year – which means the trend in this key housing indicator continues to favor more price appreciation down the road.
Interestingly, the 3.13% spike in Q4 of seriously delinquent loans of all types was primarily attributable to loans originated in 2007 and earlier. The 4.56% spike in FHA loans, however, was the result of loans made in 2014, 2015, and 2016.
It is too soon to know if the Q4 rise in serious delinquencies is merely a blip or the start of a trend, but the fact that recently originated FHA loans are now becoming delinquent could be a warning signal that needs to be watched closely.
To purchase the latest issue of The Campbell Real Estate Timing Letter,