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Falling Mortgage Delinquency Rate

Nearly 2 million homes are classified as being in foreclosure, though not all are in the market for sale as of yet. This figure has not changed that much in the past 2 years. As all REALTORS® know, the presence of large and sudden amounts of distressed property sales in the market will pressure home prices to fall. Interestingly though, home values have been holding their ground lately – broadly speaking, at the national aggregate level. The chief reason is that the percentage of foreclosed sales remains high but has not increased. In other words, this year’s home price data reflects the same percentage of distressed sales as last year’s. It is an apples-to-apples comparison. (If distressed property sales percentage was rising or falling, then the price trends would be an apples-to-oranges, improper comparison).

Despite the continuing high number of homes in foreclosure, one can expect the figures to  slide steadily downwards. Why? Simply, the number of mortgages that are delinquent has come down. In particular, delinquency rates among home buyers in recent years have been exceptionally low, with nearly all home buyers of 2009, 2010, and 2011 being successful homeowners. The elevated delinquency is due to the legacy impact of the mortgages (many now underwater) taken out during the bubble years that are still going through the system. Looking at all mortgages combined, in the first half of this year, the mortgage delinquency rate of 90-or-more days late was 3.5%, down from 4.7% the year before and down 5.1% from the peak in the final quarter of 2009. The fewer bad mortgages in the pipeline, the fewer the number of homes that will undergo foreclosure in the future. There is still further room for declines in delinquencies before we can say that the housing market is clear of distressed sales, but the housing market is clearly healing.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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