How many homes for sale today have mortgages that are delinquent on payments?
- 5% or less (53%, 10 Votes)
- Between 5% and 10% (37%, 7 Votes)
- 10% or more (11%, 2 Votes)
- None (0%, 0 Votes)
Total Voters: 19
Mortgage delinquencies persist near historic lows in the second quarter of 2023 — but are slowly on the rise.
The share of U.S. one-to-four-unit mortgaged homes one or more months delinquent on their mortgage payments increased slightly to 3.21% in July 2023. Today’s relatively low share is up from 3.12% in the prior month and down from 3.33% a year earlier, according to Black Knight.
Here in California, the delinquency rate is a modest 2.1%. A year earlier, the delinquency rate was at a record low 1.7%.
Today’s mortgage delinquency rate is just above the historic low reached at the beginning of 2023.
Seriously (90+ day) delinquent mortgages continue to decline nationally, at 1.30% in July 2023, down from 1.46% a year earlier.
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The number of foreclosure starts or notices of default (NODs) issued in July 2023 was 26,300, nationwide. This number has remained roughly level over the past year, about four times higher than the (artificial) record lows experienced during the pandemic-related foreclosure moratoriums of 2020-2021.
Of those homeowners who benefited from mortgage forbearance programs during the pandemic:
- 50% are now paying their mortgage payments fully and on-time;
- 36% sold their home, thus paying off their mortgages;
- 7% are now delinquent;
- 5% are still in some form of forbearance; and
- 2% are in some stage of foreclosure.
However, as we move further on from the end of the pandemic response into job market turmoil, more and more homeowners exiting forbearance are heading straight toward delinquency and resale or foreclosure. For example, of those who exited forbearance in August 2023, just 40% exited into making payments.
On the flip side, over half of those who exited in August are currently delinquent or in the foreclosure process — and rising.
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Negative equity vis-a-vis delinquency
Underwater homeowners — owing more on their mortgage than their home’s current fair market value (FMV) — are more likely to be delinquent on their mortgages than those in a positive equity position.
Nationally, 0.65% of mortgages were hindered by negative equity as of June 2023. Most of these were no- and low-equity mortgages issued in 2022 and insured and guaranteed by the FHA and VA, which have little to no down payment — skin in the game — requirements.
However, a seller typically needs at least 10% equity to be in a position to sell and cover the fixed 6% broker fees as well as pay for any necessary repairs, improvements, other transactional costs and seller concessions demanded in a buyer’s market. Thus, the near-negative equity share is much higher, at 3.9%.
Without at least 10% equity in a property, a traditional sale is not possible — and when excessive mortgages go unpaid, foreclosure or a lender-approved short sale follow.
Since home prices have fallen from their May 2022 peak, the negative equity share has bounced. Absent a brief seasonal uptick in the Spring, home prices will continue to fall as sellers (reluctantly) respond to homebuyers’ reduced purchasing power, slashed by rising mortgage interest rates.
As this dynamic snowballs in 2024-2025, a rise in real estate owned (REO) property will develop as banks initially react badly to increasing delinquencies due to job losses.
Generally, when going into a foreclosure stage, mortgage lenders lack the staff to properly manage pricing at trustee’s sales or work out payment moratoriums for recently unemployed homeowners. Thus, the lender starts foreclosure and bids on the property for the amount of the debt rather than accept the price a 3rd party bidder is willing to pay at the auction.
The result is the lender becomes the owner, and the property becomes classified as REO inventory which needs to be resold.
Real estate agents can prepare to take advantage of the buildup of distressed properties by working with REOs. This includes:
- preparing to invest as a real estate syndicator who purchases REO property at a steep discount for a long-term rental property investment;
- becoming a property manager of REO property to ensure regular income when traditional listings are sparse and owners experience unresolved vacancy issues; and
- acting as a listing agent of REO property by making contacts with mortgage servicing companies which will see their REO inventory rise to an unmanageable workload number.
When saddled with selling REO inventory for lack of bidders at foreclosure sales willing to outbid the lender, lenders will eventually turn to accepting short sales to buyers located by owners-in-foreclosure.
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