Annual Mortgage Delinquency Rate Falls for 19th Straight Month in October

bankEvery so often we get a panicked call or email thinking that the once-in-a-hundred year problem we had in 2008 was repeating itself.  Rest assured - it's not.  And here's why....

For prices to fall dramatically, we have to have lots or property on the market.  More property than there are buyers anyway.  And the only way you get a lot of property on the market (barring California slipping off into the ocean) is if there are a ton of foreclosures - which there were in 2008/2009.  In actuality, our foreclosure rate is very low - primarily because the equity (the difference between a home's value and the mortgage balance remaining on it) is very high.  If you have an $800,000 home that you owe $400,000 on, you won't be getting it foreclosed on.  This from RISMedia:

CoreLogic stated that the number of borrowers who were at least 30 days late on their mortgage payments remained at 2.8% for the third straight month in October, still near the lowest delinquency rate seen in more than two decades. The foreclosure rate also hovered near a record low, holding at 0.3% for the eighth consecutive month.

And we have learned our lesson on foreclosures.  During the pandemic, lenders decided it was better to allow mortgages to go into forebearance (delayed payment) rather than foreclose.  Lenders hate to foreclose - it puts them in the property business rather than the money lending business - they really despise that.  So instead of foreclosing on all those who really couldn't afford to make payments during the pandemic, they deferred payment - most often adding the deferred payment to the end of the loan.  That kept the value of their collateral high and kept them out of the home selling business.

Although we are going through a price reversion right now, it's not very deep.  We simply got to 2024 prices two years early so we are taking a bit of a step back - about 7% in the Bay Area.  Once the artificial interest rate rise is removed we'll be back on track - likely with a very competitive market as all those who would have bought in 2022 are going to be piled on top of the 2023 buyers (a "double market wave").  In market pauses, the number of overall buyers doesn't change, they simply get moved to a later market cycle and added to that cycle's buyers.  Happens every time - without exception.

And when will that happen?  Once the perceived volatility is gone (buyers hate volatility) we'll return to normal.  As inflation eases, the interest rate will be lowered and the signs of the beginning of the end will appear.  Some will be late to the party waiting for 3% interest rates (they won't be buying till 20Never), but once we hit the low 6s and 5s they'll do rate buydowns as prices will begin moving up again due to the double market wave of 2022ers being piled on to the 2023ers.