Mortgage delinquencies improved in the second quarter of 2023, but homeowners face increasing credit stress as the year drags on.
The Mortgage Bankers Association reported that the delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 3.37% of all loans outstanding at the end of Q2 2023, down 9 bps from Q1 and 27 bps YOY.
This is the lowest level on MBA’s record, which dates back to 1979.
“Buoyed by a resilient job market, homeowners are continuing to make their mortgage payments,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis.
Foreclosure actions also dipped by 3 bps to 0.13%, and foreclosure inventory is down from last quarter.
But Walsh pointed out that while the numbers are good now, increasing credit stress may cause delinquencies to rise later on.
“Delinquencies are rising for other forms of credit such as credit cards and car loans. In addition, FHA delinquencies rose 10 basis points compared to year-ago levels,” she noted. “As the economy slows and labor market cools, homeowners with FHA loans are likely to feel the distress first.”
FHA loans rose by 71 bps from Q1 2023 on a non-adjusted basis, and 13 bps YOY.
Americans hit a record $1 trillion in credit card debt recently, rising by $45 billion in Q2 2023 alone.
Inflation has taken its toll on many households, forcing gas and grocery purchases onto credit cards as prices have increased while budgets stay the same.
Pairing rising debt with historically high interest rates, many consumers are likely to feel stress from their credit and auto debt.
“As interest rates feed through from the federal funds rate to interest rates on mortgages and credit cards, that affects everyday consumers,” Sofia Baig, an economist at Morning Consult, told CNN. “So with elevated interest rates, paying that debt becomes more expensive, and with consumers continuing to take on more debt, this combination will put more pressure on some households who have those tighter budgets.”
Prospects are even worse once student loan payments kick in again come October. Almost half of respondents to a Credit Karma survey expect to become delinquent once their monthly payments restart, and 53% say they’re already struggling to pay their bills without the additional monthly payment.
One in four respondents plan to defer buying a home or getting married until they’ve managed to pay those loans off.
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