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Delinquency Rates Dropping Dramatically

In yesterday’s blog post, we explained that the ‘shadow inventory’ of distressed properties which has hung over the housing market will soon be released for sale. The real estate market won’t recover until we work our way through this discounted inventory.

The great news is that as these properties exit the bottom of the inventory funnel, there are fewer homes entering the top of the funnel. The best indicator of future foreclosures is the number of households that fall 90 days delinquent on their mortgage payments. This number is falling dramatically. As the S&P Shadow Inventory Report states:

“Our estimate of the months to clear the shadow inventory reached its peak at 57 months in early 2008. Back then, rising default rates caused a sharp increase in the overall amount of distressed properties. However, first default rates have been falling since March 2009), indicating that fewer loans are becoming distressed.”

Here is a graph from the report:

Bottom Line

The housing market still has a large number of distressed properties to work through. However, there is now an end in sight as long as delinquency rates continue to decline.

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6 replies
  1. Geo Gervasi
    Geo Gervasi says:

    Hmm, interesting eh?

    The percentage of mortgages that were seriously delinquent, as well as mortgages that were 60 or more days delinquent and delinquent mortgages to bankrupt borrowers, increased slightly to 4.9% of the portfolio from 4.8% in the first quarter of 2011, after decreasing during each of the previous five quarters.

    While early stage delinquencies and serious delinquencies both increased from the previous quarter, they decreased from a year earlier.


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