Mortgage default rate is an indicator of housing health.
A high level of default implies that something in the market is going badly. It means more borrowers can no longer afford to pay their credit obligations, which in turn signifies a negative economic situation.
For this reason, default figures and statistics matter and are therefore monitored regularly.
The most current data parsed is then compared to data in the past to identify growth, declines, or steadfastness and how it computes along with other current market factors to achieve a broader economic understanding.
One such tool that helps collect data on default rates is the S&P/ExperianConsumer Credit Default Indices. The indices reflect changes in consumer credit defaults. Aside from mortgage defaults, it also includes bank card and auto loan default rates.
Per its latest report, it was found that first mortgage defaults continue to be at its lowest within the past decade.
Compared to June’s data, the July figure increased by 2 basis points to 0.62 percent – not much difference from last year’s 0.66 percent.
Despite this slight climb, however, July’s default rate is still the lowest in a ten-year period, defeating the previous year’s record.
“Based on national averages, consumers are in good financial shape,” says managing director and chairman of the index committee at S&P Dow Jones Indices, David Blitzer.
Blitzer adds that these default levels were at par with those seen before the financial crisis.
Not just mortgage
The low default levels is a situation not unique to the first mortgage market.
Default rates for auto loan has also been in its lowest level in 10 years. This is a notable information, given the rumors of a possible auto loan crisis.
Meanwhile, default rates on bank cards remain steady.
Growing credit market
As more consumers get familiar with the dynamics of the credit process, more of them are also entering the system, resulting to a higher consumer credit outstanding which is now at 5.7 percent, an all-time high.
The report also included consumer default rates data from the top five major cities in the US.
New York experienced the most decrease on a month-to-month comparison but looking at the data last year, Miami had the the highest decline.
The consumer default data came briefly after the jobs report posting for July just two weeks back.
There were 209,000 jobs added in July, above the projected 183,000. Employment rate also improved to an all new high at 153.5 million, while unemployment numbers remain steady.
Juxtaposing the two data together, the new default numbers make sense. The low number of defaults, however, can be attributed to different factors. The low interest rate is one.
When the market hit historically low rates last year – a phenomenon that occurred after Britain’s decision to exit the European Union, many homeowners took advantage and refinanced.
This helped many of those who were approaching delinquent status renew their mortgage terms and get a lower rate, effectively reducing their monthly home loan payments.
It does seem like the good times for US housing. But with perpetuating issues in inventory scarcity and rising home prices, it’s too early to tell whether we get to enjoy it or not.