Mortgage delinquencies may surge as budgets stretch

Delinquency rates have remained low, but inflation may cause them to creep back up

While mortgage rates surged in the summer, the serious mortgage delinquency rates returned to pre-pandemic levels in August. Inflation, however, could be a big hit to delinquency rates, and may increase the overall delinquencies in coming months as household budgets tighten.

The number of borrowers classified as seriously delinquent, who are 90 or more days late on their mortgage payments, dropped in August to 1.2%, the lowest level since April 2020, according to CoreLogic’s latest report. The overall delinquency rate dropped to 2.8%, a near record low. 

“The share of U.S. borrowers who are six months or more late on their mortgage payments was less than one-third of the pandemic high recorded in February 2021,” said Molly Boesel, principal economist at CoreLogic. “Furthermore, the foreclosure rate remained near an all-time low, which indicates that borrowers who were moving out of late-stage delinquencies found alternatives to defaulting on their mortgages.” 

However, if the Federal Reserve can’t deflate inflation, mortgage delinquencies could creep up in the coming months due to borrowers’ monthly budgets being stretched further, the report projected.  

For potential homebuyers, affordability has become a challenge due to mortgage rates more than doubling year-to-date, which in turn caused monthly mortgage payments to increase. The national median payment applicants applied for increased by 5.5% to $1,941 in September, reversing a four-month-consecutive decline in May, according to the Mortgage Bankers Association (MBA).

The U.S. unemployment rate has stayed below 4% since the beginning of 2022, and the still-healthy job market continues to help homeowners with a mortgage make payments on time, CoreLogic’s report explained. 

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The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.2% in August 2022, up from August 2021. The share of mortgages 60 to 89 days past due was 0.3%, unchanged from the same period last year.

In August, all states posted annual declines in their overall delinquency rates. The states with the largest declines were Hawaii, Nevada and New York – all down 2.1 percentage points.

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