TransUnion forecasts credit delinquencies will decrease in 2017
But mortgage debt will increase
Mortgage delinquency rates will continue their downward trend in 2017, according to a forecast from TransUnion.
TransUnion projects serious delinquency rates will decrease from 2.21% in the fourth quarter of 2016 to 2.11% by the end of the fourth quarter in 2017.
“The mortgage market has been seeing steady improvements during the last several years, and we believe lower unemployment rates, growth in median household income, and rising home values will be the primary drivers for continued strong performance in this sector,” said Joe Mellman, TransUnion vice president and mortgage line of business leader.
“The rate at which mortgage delinquencies are expected to decline is expected to slow primarily because the inventory of foreclosure properties have diminished significantly and we are starting to stabilize on credit performance with new mortgage consumers entering the market with high credit scores,” Mellman said. “The serious mortgage loan delinquency rate also has reached more ‘normal’ levels, hence further steep declines are unlikely.”
These lower mortgage delinquency rates are partially due to the small composition of subprime borrowers who have a mortgage balance. Of the 66.9 million consumers with a mortgage balance in the third quarter of 2016, 8.5% were subprime borrowers. This is down from the 8.7% of subprime borrowers out of the 67.4 million consumers with a mortgage in the third quarter of 2015.
This forecast is based on the assumption that the Federal Reserve will raise rates by a total of 50 basis points by the end of next year, Mellman said in an interview with HousingWire.
“Mortgage origination activity has been relatively stable and we don’t anticipate a 50-basis point increase in interest rates will deter too many prospective homebuyers,” said Mellman. “In fact, we believe with improved economic conditions we could see nearly three million first-time homebuyers in 2017, which will prove to be quite beneficial to the industry.”
While mortgage delinquencies are going down, mortgage debt levels are expected to increase by nearly $4,000 from $194,875 in the fourth quarter this year to $198,435 at the end of 2017.
This increase in mortgage debt is due to several causes, Mellman told HousingWire. The increase in home prices and the rise of the low down-payment programs will both increase the debt that consumers take on.
However, First American Chief Economist Mark Fleming told HousingWire that the increase in interest rates could cause borrowers to buy less house as they pay more in interest.