A mortgage is a “death pledge” according to its etymology, but today’s mortgage debt is very much alive and thriving. Also today, we rarely hear of the fiesta-time events of generations past called “mortgage burning parties” since bankers never attended.

If totals impress you, U.S. mortgage balances stood at $11.92 trillion at the end of December 2022, according to the New York Federal Reserve. For comparison, student debt was $1.76 trillion as of September 2022, the amount owed by 45 million Americans. Arguably, it’s rich people versus poor people.

During the fourth quarter (Q4) of 2022, total national mortgage debt increased by $254 billion, contributing to a $1 trillion increase in mortgage balances in 2022. Comparatively, the total national increase in mortgage balances for 2019 was $506 billion, according to the New York Fed.

As no surprise, mortgage originations in Q4 2022 fell back down to 2019 levels, at $498 billion. Fixed rate mortgage (FRM) rate increase was the culprit, jumping nearly four percentage points during 2022. FRM rates hovered near 3.0% in January 2022, peaked at 7.0% in June 2022 and fell back to 6.4% by the end of the year. They now stand around 6.7% but will slide a little while the Fed finishes its inflation fight.

With conviction, the jump in mortgage interest rates slashed buyer purchasing power. At the end of 2022, the Buyer Purchasing Power Index fell to -31 points. This means a homebuyer with the same income today is able to borrow 31% less purchase-assist mortgage money than a year ago.

As of December 2022, 2.5% of outstanding mortgage debt was in some stage of delinquency, lower than Q4 2019 by 2.2 percentage points.

Foreclosures also remained very low in 2022. But with a diminished jobs market outlook, inflationary pressures, and a monthly increase taking place in no-equity mortgaged homes brought on by a recession of plummeting home prices, expect the return of distressed sales. Expect 2011 conditions to return in 2025 as inexperienced mortgage bankers take a long time to work through delinquencies and force properties to be sold.

Related article:

Homebuyers recede as 2022’s mortgage rate tsunami ends

Pivot to distressed sales

For agents to regain lost income from sluggish home sales volume and falling home prices, they need to expand their marketing to focus on buyers during the next three years of 2023’s housing recession.

Expect home prices to continue to fall back through 2025 with listings increasingly consisting of “unconventional,” distressed sales, such as:

  • foreclosures;
  • short sales; and
  • real estate owned (REO) property.

Thus, agents who remain active, participating fully in the real estate market during the recession, will fast become familiar with these nontraditional listings. Greater income expectations will be realized by agents who become an expert in assisting buyers to purchase a home — or two — based solely on their treating declining sales prices as a huge positive for a buyer of any age. An agent’s knowledge and ability to explain the reasons for buying when the sellers cannot readily sell will “seal the deal.”

As prices continue their decline, homebuyers who bought in the years 2018 through 2023 using capital borrowed by originating a mortgage to fund the purchase price will gradually, monthly, find themselves underwater. They will owe more debt on their home than its declining fair market value (FMV) paid by a diminishing reservoir of willing buyers. Unable to complete a conventional sale, this class of homes owned by those who lose their income or are forced to relocate will be placed in foreclosure status, be sold to the highest bidder, or become REO properties to be resold.

That’s where a DRE licensed REO expert comes in. Though distressed sales remain low today, REO properties are poised to return in significant numbers during the years of the 2023 recession. An REO expert works as an insider, the first to know when a property hits the market.

While home sales volume and prices plummet, mortgage delinquencies are the one factor that will remain on the rise — a catalyst for sales. Be there to capture this growth business blossoming as a market within the market of declining real estate sales and prices — which is a low level sprinkle today, but a massive California-style storm tomorrow. Again.

Related article:

How to prepare for the REO resurgence

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