One of the indicators of a housing bubble is the rising rate of mortgage delinquencies.
Being delinquent is when a borrower fails to pay his or her mortgage obligations on time, or pays less than he or she is due. The mortgage is then considered a default if the borrower is unable to pay after a (typical) period of 90 days. By then, the full loan balance becomes due.
Just like consumer default rates, mortgage delinquency rates are closely monitored and compared with previous data to see pattern recurrences, pace of growth, gaps in decreases, and predict future behaviors.
Sometimes, different measures are used and integrated to produce a more reliable analysis of current market profiles.
Case in point, the recent reports by S&P Dow Jones Indicesand Experian, and TransUnion.
A data reported by S&P Dow Jones Indicesand Experian on Tuesday found that first mortgages and auto loan default rates have plunged to a decade-low. And just today, TransUnion released a new report supporting the Tuesday disclosure.
The S&P/Experian consumer credit report revealed that first mortgage and auto loan 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, a slight difference from the previous year’s 0.66 percent. Yet, despite the climb, 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.
Meanwhile, per TransUnion, mortgage delinquency rates also hit a new 10-year low, as it dropped below 2 percent for the first time in a decade, hitting 1.93 percent in the second quarter of 2017.
By a year-to-date comparison, the current percentage is down 16.5 percent from the second quarter of the previous year.
TransUnion’s senior vice president Joe Mellman called it a “new milestone for mortgage delinquencies.”
“We’re now at the lowest delinquency levels in nearly a decade, and we anticipate those levels will remain low through the rest of this year,” Mellman said.
During the first quarter of 2017, mortgage originations increased year-over-year to 1.49 million from 1.46 million at Q1, 2016.
However, this annual rise also represents a 28.3 percent decrease from the previous year’s last quarter.
Comparably last year, the number of mortgage originations decreased by only 9.4 percent from the Q4 of 2015 to the first quarter of 2016.
The interest rate factor
What elements could have driven the decline in mortgage originations? TransUnion explains the rise in interest rates is possibly to blame. A current study from the Urban Institute supports this assumption, concluding that interest rate increases will pull down originations.
Average new account balances saw a decline of 1.6 percent to $219,743 in the first quarter of the year, down from $223,262 from the previous year.
Data in sync
Earlier this month, we can recall the strong jobs report that added 209,000 new employments – above the projected 183,000 new jobs.
The three separate measures piece together to assure the US housing market that it is, in fact, getting by just fine. With low interest rates and more jobs, there should be no problem, right?
Still, we need to look no further than the previous articles to know that there are some serious issues at hand. Take affordability and scarce inventory as easy examples.
How do the negative and positive elements fit into the whole picture?