Delinquencies: Roadblock to a Housing Recovery?
More Delinquencies=More Foreclosures= More Supply=Lower Prices
The current economy has devastated the finances of so many families in every income bracket and in almost every neighborhood in this country. More and more people are falling further and further behind in their mortgage payments. In the past people would take a second job or borrow money from family to catch up. Today, many people can’t even find a first job and few families still have the savings to help.
The 90+ day delinquency rates in every state are at historic levels. And the percentage of these borrowers who will be able to catch up on their payments are at all time lows. In this graph from Calculated Risk, we can see that delinquencies (the blue section of each bar) far outnumber current foreclosures (the red portion).
Below is a graph showing the cure rates on mortgages 30, 60 and 90 days behind in 2005 and the cure rates today. The cure rate is the percentage of homeowners that will catch up on their payments. Notice the severe drop between 2005 and today.
Let’s only consider those mortgages that are already 90 days+ behind. Once a home falls ninety days behind, there is less than a 1% chance the homeowner will catch up without outside help. If we calculate the number of homes currently 90 days behind based on numbers from the Mortgage Bankers Association, we get over two million homes. Ninety nine percent of them will fall into the modification, foreclosure or short sale category.
What could this do to home prices this year? A Wall Street Journal Blog 12/29/09 titled Economists React: ‘Prices Have Further to Fall’
One in four mortgages are currently underwater. Foreclosure and delinquency rates, which hit a record high at the end of the third quarter of 2009, are therefore likely to continue to rise, perhaps sharply. In addition to this, the inventory of homes for sale remains near record highs. … Despite the recent positive reports on housing prices, we believe that prices have further to fall—about another 5%-10%. — Patrick Newport, IHS Global Insight
And the luxury market could be hit the hardest. Below are two interesting graphs from data collected by First American CoreLogic. The first shows the percentage delinquencies of homes with different mortgage balances:
As we can see, the highest percentage of houses 90+ delinquent is in the $1,000,000 and above category. And that number is up over 250% from just a year ago which is shown in the second slide:
Delinquencies have to be considered one of the greatest challenges to a real estate recovery in 2010. We will keep our eye on this category and report back as this topic evolves.
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The Boston Federal Reserve paints quite a different picture on the topic of self-cure rates for delinquencies. How do you interpret such a broad difference?
http://www.bos.frb.org/economic/ppdp/2009/ppdp0904.pdf
Hi John,
Great question. I think the differences can be explained in two points.
1.) The Fed report you have attached (btw, thank you) has a different definition of seriously deliquent. They see it as loans 60 days delinquent.
Our post was concentrating on loans 90+ days delinquent.
2.) The Fed Report is dated.
The Fed report is dated July 6 , 2009. Much has changed since then. Just seven weeks after this report was issued there was a dramatic decrease in cure rates. In a press release dated August 24,2009, Fitch reported:
Then in September, Amherst Securities reported that the ‘cure rate’ for 90+ day delinquencies dropped to 0.8%
Hope this helps explain the broad difference.
Steve
Steve,
Do you have an recent cure rate data? Thanks and great site!!!
HR
@Hank,
The ‘cure rate’ is still hovering around 2% for 90 day delinquencies.
Steve
Thanks Steve – any sense of 30 and 60 days?
I don’t keep those stats. However, my recollection is that they are getting better. The next time I see a study on it, I’ll forward a copy to you.
Steve