Can Housing Foreclosures Remain Low as Consumer Debt Rises?

A Conversation With Molly Boesel

Maiclaire and Molly unpack how rising prices for essentials like groceries and gas are stretching household budgets and how people can navigate through the uncertainties of potential economic shifts while maintaining an optimistic outlook for the housing market.

In This Episode:

1:54 – What is the state of affordability in the U.S. economy?

3:26 – How are mortgages affected by overall real estate market trends?

5:15 – Why is it important to track mortgage delinquencies?

7:49 – How does rising consumer debt affect property owners’ ability to pay mortgages?  Is it a leading indicator that there may be more late payments soon?

11:15 – What is the status of foreclosures in the market?

12:42 – How are mortgage servicers using equity to protect property owners from late payment and foreclosure?

15:46 – Erika Stanley goes over the numbers in the housing market in The Sip.

17:08 – How have home equity gains differed across the U.S.?

19:52 – Are there certain states where the potential for mortgage delinquencies is higher?

20:35 – Erika Stanley reviews natural catastrophes and extreme weather events across the world

22:00 – What does the future look like for mortgage delinquencies are foreclosures?

Up Next

Are Investors and Interest Rates Abolishing the Dream of Homeownership?

Molly Boesel:

So right now, mortgage delinquencies, I’m talking 30 days late and beyond, that’s about 3% of all mortgages. A little under that. During the Great Recession, the worst times it was about seven and a half percent. So it’s nowhere near that. And we have record lows here currently.

Maiclaire Bolton Smith:

Welcome back to Core Conversations: A CoreLogic Podcast where we tour the property market to investigate how economics, climate change, governmental policies and technology affect everyday life. I am your host Maiclaire Bolton Smith, and I’m just as curious as you about everything that happens in our industry.

In the property industry, we focus a lot on home price growth. However, the increase in value is only one side of the coin. Like any investment, there’s also the risk of price declines. Worries about housing recessions have begun to abate. This is primarily thanks to the large amount of equity that many homeowners have built up over the last several years. Nevertheless, it is important to track the rate of delinquent mortgage payments in the U.S. After all, the size of the mortgage is only one piece of the puzzle, even though it is a large one that does affect the homeowner’s ability to pay.

We also need to consider mortgages in the context of total consumer debt, which is a figure that has been rising steadily in recent months. So to talk about this trend of mortgage delinquencies and consumer debt across the country, we have one of our favorite guests back with us today, Molly Boesel from the Office of the Chief Economist. Molly, so glad to have you back.

MB:

Great to be here for my quarterly podcast.

MBS:

I love it. Okay, so let’s just jump in and talk about one of the most persistent and really important issues that is defining the US housing market today, affordability. It is the biggest thing or lack thereof, I guess we could say.

MB:

Right. Right. Lack thereof, I think.

MBS:

So I guess there’s so many things that are increasing the unaffordability, including people’s abilities to pay their mortgages, but can you just start off by talking a little bit about the state of affordability across the country?

MB:

Oh, yeah. I mean, it’s big. So we’ve had just huge increases in home prices.

MBS:

Yeah.

MB:

Home prices has been steadily increasing since 2011, so.

MBS:

Wow.

MB:

And then obviously been making bigger news over the past few years. So that’s one reason that affordability is suffering.

Erika Stanley:

Before we get into this conversation, I wanted to remind our listeners that we want to help you keep pace with the property market. To make it easy, we curate the latest insight and analysis for you on our social media where you can find us using the handle @CoreLogic on Facebook and LinkedIn or @CoreLogicInc on X, formerly known as Twitter and Instagram. But now let’s get back to Maiclaire and Molly.

MB:

And another reason is that mortgage rates rose from under 3% to almost 8% in the past few months.

MBS:

Crazy.

MB:

It does appear that the peak of the mortgage rates is passed now, but mortgage rates are still, the 30-year mortgage rate is still up in the high 6% range. So that just adds to the lack of affordability. And then there’s this lack of supply, so.

MBS:

Sure.

MB:

I think we all know about that, the lack of housing supply. So that just adds to the pressures.

MBS:

Yeah, I mean, there’s just so many different components to this and all of it together is just compounding it to make this affordability just continue to be a growing crisis, really in this country. So how are mortgages affected by these trends?

MB:

Yeah. So mortgages, the monthly payment on a mortgage has gone up quite a bit over the past few years.

MBS:

Significantly.

MB:

Significantly.

MBS:

Yeah.

MB:

Especially with the interest rate increases. So you have borrowers that are stretched a little more when they get into their first home, and then you have, layer on some of the things that are going on with insurance costs going up.

MBS:

Sure. Yeah.

MB:

So we have borrowers who were able to afford to get into their homes, but then maybe their insurance premiums go up after they’ve gotten their mortgage, so.

MBS:

35%. Speaking from experience.

MB:

Oh, right. Right, exactly. Exactly. And then as home values go up, borrowers who may have been able to meet their mortgage before have increases in their property tax as some, I think maybe where you are, you don’t have this, but where I live in Virginia, they readjust the value of the home every year for the tax basis.

MBS:

Yeah. And I know it can be significant. Where I live, yeah it is. Fortunately, you do get locked in when you purchase a home, but I know there are a lot of other places that do re-evaluate, and property taxes do continue to increase.

MB:

Right.

MBS:

So that is definitely adding to the increased costs that people are having on a monthly basis.

MB:

Exactly.

MBS:

So I mean, one of the big things we want to talk about today is mortgage delinquencies. So I guess why is it important to track that and stay on top of it?

MB:

Yeah, so first of all, mortgage delinquencies are really low, so you have,-

MBS:

Okay. Which is great. Yeah.

MB:

It’s great. Yeah. We have an incredibly strong job market and people have jobs, they’re able to pay the mortgages. It’s pretty simple.

MBS:

That’s great.

MB:

You’ll always have some delinquency, some foreclosure, but it’s very low right now. But why track that? Well, you want to track the health of the mortgage market. So if mortgage delinquencies increase, you might have mortgage originators losing money or servicers losing money, and they might pull back on credit. We don’t foresee that right now, but it’s good to keep up on that.

MBS:

Yeah.

MB:

And also, servicers want to track delinquencies because maybe they can work something out with a borrower before it goes too far. We saw a lot of that during Covid, which was a great, I don’t want to call a pandemic an experiment, but it is kind of a great experiment for servicers to be able to work some things out before the borrower gets too far down the line.

MBS:

Yeah. And I mean, during Covid, but also during the Great Recession, this is when we saw huge numbers of delinquencies then as well too, right?

MB:

Oh, yeah. Yeah, yeah, yeah. We’re not anywhere near that. So right now, mortgage delinquencies, I’m talking 30 days late and beyond, that’s about 3% of all mortgages. A little under that.

MBS:

Okay.

MB:

During the Great Recession, the worst times it was about seven and a half percent. So it’s nowhere near that and near record lows here currently.

MBS:

That is really good to hear. But I guess when we talk about, I know a lot of times people hear and think about the overall consumer debt and mortgage debt is part of that, isn’t it?

MB:

Right, right. Oh, yeah, yeah, yeah. Mortgage debt, like you said before, I think you said it’s the biggest portion of debt, but it’s only a portion of it.

MBS:

Right. But it also is like, it’s because you’re borrowing a huge amount of money. You could compare it to an auto loan and auto loan, maybe 20, 30, $40,000 versus a home loan could be anywhere from $200,000 to several million,-

MB:

Sky’s the limit. Right.

MBS:

Dollars too. Right. Sky’s the limit. So I guess just thinking about that, like auto loans and credit cards and different types of debt, how do the mortgage delinquencies kind of fit along with that other than the fact that they are so much larger because of the cost of the homes?

MB:

Right. So mortgage debt is larger, but the delinquencies on mortgages are very low right now, and they’ve remained low. But as consumers are building other debt, the delinquencies on that other debt are starting to go up. So specifically credit card debt and auto loan debt has been increasing.

MBS:

Okay.

MB:

And just think about the prices of cars went up, inflation in general.

MBS:

Significantly.

MB:

Right. I mean, as people are having a hard time making ends meet. I mean, think about the basics of food, gas, everything. Prices are going up, so they’re borrowing more on their credit cards. They’re probably borrowing more to get a car so they can go back to work. So it’s just left a lot of budget stretched.

MBS:

Yeah, I heard somebody this week call the grocery stores a luxury purchase because it’s gotten to be that way, that it’s now so expensive to buy the basic needs, that everything feels like a luxury these days.

MB:

Right. And exactly. And then think about, oh, I wanted to buy a nice pint of ice cream a couple weeks ago. I was like, why is this $10?

MBS:

$12.

MB:

Yeah. I was like, what? And that’s not at a convenience store or anything. That’s just a local grocery store. So yeah, everything’s going up, but luckily I don’t need the ice cream, so.

MBS:

I know. I had the exact same experience over ice cream as well, that I was like $12. I’m like, yeah, we don’t need ice cream.

MB:

Yeah. Yeah. We’ll just go without. Right. It’s not a problem.

MBS:

We’ll survive.

MB:

Yeah, exactly.

MBS:

Okay. So I guess I’m glad you kind of talked about that, about kind of how the level of where we are with mortgage debt, because I know very recently the New York Fed reported that the household debt had increased in Q4 of 2023 by over 1%, 1.2% so, and this is now kind of getting up to levels that we hadn’t seen since the pandemic during the experiment that the pandemic was.

MB:

Right.

MBS:

So do you think that this might be a warning sign that mortgage delinquencies may be on the rise or maybe coming, or is it a leading indicator in any way that we may expect to see something more with mortgage delinquencies, or is it completely unrelated?

MB:

I don’t know that it’s a leading indicator. It is definitely something to worry about, but we haven’t seen it bleed into mortgage delinquencies yet. But like I said, as budgets are stretched, a mortgage could be something the borrower would be late on, but it does appear that they are prioritizing the mortgage over other items right now.

MBS:

Right. Probably because they know that they need to stay in their home and the mortgage is tied to, it’s a secure asset, it’s tied to your home versus maybe something like a credit card or something that isn’t secured by something else.

MB:

Exactly. Yeah, that’s a good point.

MBS:

Yeah. Okay. So basically we’ve been talking in terms of delinquencies, which is basically if something’s 30 days late, it’s missed one payment. But if you continue to go unpaid and it goes beyond delinquent, it can then lead to foreclosures, and I know,-

MB:

Exactly.

MBS:

That becomes a much bigger deal. So I guess when does that generally happen? How far do you have to be delinquent before you go into foreclosure, and are we tracking the rates of foreclosures and what does that look like right now?

MB:

Yeah, yeah. So I mentioned the 30 day and beyond rate is pretty low. When you get beyond 180 days late, it’s still pretty low, so you’d have to go even further than that. The bank will start foreclosure proceedings sometime after that. That’s when someone spend six months or more past due.

MBS:

Yeah.

MB:

That’s a pretty low rate right now. Foreclosure rate is 0.3%.

MBS:

Wow. Yeah.

MB:

It’s been there for, ooh boy, more than a year.

MBS:

Wow.

MB:

And before that,-

MBS:

That’s great.

MB:

It was 0.2%, so.

MBS:

Wow.

MB:

During the Great Recession, it was around three and a half percent, so.

MBS:

Yeah. Yeah.

MB:

It’s quite a bit lower. Banks are really working things out with borrowers,-

MBS:

It’s a great sign.

MB:

Before they go into foreclosure. It is, and it has,-

MBS:

That’s a really great sign.

MB:

A lot to do with the amount of home equity borrowers have. Borrowers are sitting on, most of them are sitting on huge amounts of home equity. Across the US, the average borrower has $300,000 in home equity.

MBS:

Wow. That is a lot.

MB:

In California, the average borrower has $600,000 in home equity.

MBS:

Sure. Yeah.

MB:

So obviously it’s higher in places where houses cost more, but even in the lowest parts of the country, it’s a 100,000, and that’s where home prices are lower. So banks can help use that maybe to do some kind of borrowing against that home equity.

MBS:

Borrowing against the equity. Okay.

MB:

Some kind of mitigation, lost mitigation of some kind.

MBS:

Yeah.

MB:

And if the loan then should proceed down to where the borrower might lose the home, they could actually sell it and not go in into foreclosure.

MBS:

Gotcha. Okay.

MB:

Everyone really wants to avoid that foreclosure and hey, I mentioned before, yeah, limit the foreclosures. It’s costly. The banks don’t really want these houses back, and with supply so low, selling that house back out on the market, it’s going to probably sell pretty quickly.

MBS:

Yeah, no, absolutely. Yeah. No, honestly, that was right in the question in my head, was that how does having this equity help with this? Because you can then borrow from the equity potentially to get back on track or home equity. I know people talk about home equity lines of credit for doing renovations to your home, but actually having a similar sort of home equity line of credit to pay your mortgage if you are in distress.

MB:

Yeah. So servicers, mortgage servicers have all sorts of methods to help borrowers get current on their mortgages.

MBS:

Yeah.

MB:

So a borrower would need to work with their servicer, not be afraid to talk to them.

MBS:

Sure. Sure. Yeah.

MB:

But it’s better than the alternative.

MBS:

Okay. Diving a little bit more into home equity, I want to talk a little bit more about this because equity is continuing to increase. Home prices are still continuing to increase and on the rise, and there is, I mean, is there still hesitation about people buying homes because things are going up and interest rates are still really high? Where are we with all of this?

MB:

Yeah, there is a lot of demand for home buying right now, and I think the biggest problem is the supply.

MBS:

Yeah.

MB:

So if the supply could loosen up a little bit, then there’d be more home buying. Of course, you would have some potential borrowers who just were priced out of the market.

MBS:

Sure, yeah.

MB:

But there are enough that have been waiting around because of the lack of supply that are ready to go when they find the right home.

ES:

Before Maiclaire and Molly continue the conversation, it’s that time again. Grab a cup of coffee or your favorite beverage. We’re going to do the numbers in the housing market. Here’s what you need to know. In this episode, Molly has been talking about the low rate of mortgage delinquencies, so keep listening to learn more about why home equity allows most people to remain up to date on their mortgage payments.

In other news, spring home price gains are already off to a strong start despite continued mortgage rate volatility. Between January and February 2024, prices increased by 0.7%, which is almost double the monthly increased recorded before the pandemic. Annual price growth is also positive, except for Idaho, which was the only state to post a small annual home price decline.

Overall, U.S. home prices increased by 5.5% from February 2023 to February 2024. CoreLogic forecasts prices to continue to climb, increasing 3.1% on a year-over-year basis. The states with the highest increases year over year were South Dakota, 13.8%, New Jersey 12.5% and Rhode Island with 11.6%. Miami, once again, topped the charts with the highest home price gains, posting 10.2% growth year over year, and that’s the sip. See you next time.

MBS:

You did mention when we’re talking a little bit more about equity as well, that it is very regional, that there are some areas where,-

MB:

Oh, yeah.

MBS:

I mean, you and I have talked a lot about me buying this home, and we bought this home exactly a year ago, and the value of the home has increased over 15% in one year. So yeah, it was a good investment and it’s continued to go on the rise, and that’s just an automated valuation based on what the house looked like when we bought it, and not taking into consideration all of the renovations that we did. So it’s actually probably even higher than that. Not that I’m looking to sell it anytime soon, but I mean, I think when we look at that, it means that we do actually have a lot more potential equity in this home because of the value of the home has increased so much. So I guess comparatively in different parts of the country where home equity is not as high, there are people where their homes are less and people may have less equity in them. Can you talk about how that differs, and maybe if you have less equity in your home, does that then contribute to potentially maybe more delinquencies or?

MB:

Yeah, yeah, yeah. So you’ve got, like I said, California 600,000 average equity per borrower. Let’s see. San Jose I think is our top one, is 1.2 million average equity per borrower. But remember how much homes cost in those areas, right?

MBS:

Yeah. Yeah.

MB:

They’re extremely expensive.

MBS:

It’s crazy.

MB:

Our lowest is Louisiana, about $120,000 of home equity, but homes are cheaper in Louisiana, so they’re not sitting on tons of equity, but if they should need to sell their home, they probably have enough to pay their mortgage. Yeah. So when a borrower gets into serious delinquency, going down the foreclosure path, and they don’t have as much equity as in some of these other areas, there is more of a risk of foreclosure, but they still may have enough that they could sell the home and pay off their mortgage.

MBS:

Sure.

MB:

But when you asked about delinquencies, I mean, equity is not really going to determine if you’re delinquent or not. The first indication of delinquency would be more like a job loss or life events like medical bills or divorce or something like that. It’s when you get into these later stages of delinquency is when the equity cushion really comes into play.

MBS:

Gotcha. Okay. No, that makes sense. You did call out a couple of different regions there, Louisiana in particular, where there’s probably the lowest home equity. Are there certain states that do stand out as being potentially on the high list that may be problematic for delinquencies or for potential foreclosures?

MB:

Yeah, I think Louisiana does have higher delinquencies, Mississippi, higher delinquencies, also up in the Northeast, New Jersey, New York, higher delinquencies.

MBS:

Okay.

MB:

So.

MBS:

Okay.

MB:

But yeah. But still historically for those areas, they’re on the low end.

ES:

Before we end this episode, let’s take a break and talk about what’s happening in the world of natural disasters. CoreLogic’s Hazard HQ Command Central reports on natural catastrophes and extreme weather events across the world. A link to their coverage is in the show notes. The beginning of hurricane season is just around the corner. There are already conversations about the shift to the La Niña phase of the Insel weather pattern. Historically, there is a tendency for La Niña to follow strong El Niño events. The transition is notable due to this weather pattern’s influence on hurricane development. The last La Niña phase coincided with storms such as Hurricane Ian, Hurricane Nicole, and Hurricane Ida.

In other news, April 3rd brought a magnitude 7.4 earthquake to the coast of Taiwan. The original shock occurred at 7:58 A.M. local time, and was followed by nearly 30 strong aftershocks, including a magnitude 6.04 earthquake 13 minutes later. CoreLogic estimated that the insurable losses from the earthquake will be between five and $8 billion. As Taiwan is the global leader in semiconductor chip manufacturing, a major impact to plant facilities or shipping networks could have a significant global impact. Fortunately, early reports from Taiwan indicate little to no damage or disruption to chip manufacturing plant operations.

MBS:

And if you were to take a look in your crystal ball, what do you think the future holds for 2024 for delinquencies?

MB:

I love my crystal ball. Let me go get it. The crystal ball says we do expect that well, okay. So first of all, unemployment is just incredibly low right now, so we do expect it to go up a little bit, maybe a little over 4% by the end of the year. It’s a little under 4% now. So a little bit of increase in unemployment. And with that increase in unemployment, you’d see a little bit of an increase in delinquencies, again, from about serious delinquencies going from about 1% of all mortgages outstanding to maybe,-

MBS:

Okay.

MB:

Under 2% still. So not even up a percentage point.

MBS:

Okay.

MB:

So still remaining very low when you talk about getting into the later stages of delinquency. So really not from that standpoint. From my crystal ball says not too much to worry about, but when you look at, we talked about the beginning increases in expenses with insurance and property taxes and other,-

MBS:

Ice cream.

MB:

Essentials. Ice cream essentials. I’m going to call your basic food essentials. So there is that pressure on households. So that’s what it comes into the mortgage industry to help kind of work things out.

MBS:

Sure. So overall, it seems positive. We’re in a pretty strong state. It’s not warning signs that we’re looking towards a recession. Things look pretty positive and pretty optimistic other than inflation obviously increasing and putting added stress on people.

MB:

Right.

MBS:

For the most part, the housing market seems pretty strong.

MB:

Well, so there’s two sides to that. Right. Of course, you don’t have, what is it, that there’s no one handed economist, right? So there’s two sides to everything. So in terms of mortgage health, like mortgage delinquencies, it’s really good news. But in terms of the housing market and mortgage production and loans and sales, the U.S. is not in an overall recession, but you could fairly say that the housing market’s in recession.

MBS:

Gotcha. Okay. Well, Molly, I can’t wait to hear what we’re going to talk about next quarter. It’s been great as always, to have you back on Core Conversations: A CoreLogic podcast.

MB:

Yeah, thanks. Can’t wait to come back.

MBS:

All right. And thank you for listening. I hope you’ve enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life producer, Jessi Devenyns; editor and sound engineer, Romie Aromin; our Facts Guru Erika Stanley; and social media duo, Sarah Buck and Makaila Brooks. Tune in next time for another Core Conversation.

ES:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Well, Molly Boesel is an economist at CoreLogic. She is responsible for analyzing and forecasting housing and mortgage market trends. She has deep expertise in mortgage market analysis, model development, and risk analysis in the housing finance industry. She regularly contributes to the CoreLogic Intelligence blog where you can read her work at corelogic.com/intelligence.

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