Q4 Update: Delinquencies, Foreclosures and REO

REO: lender Real Estate Owned

I’ve argued repeatedly that we would NOT see a surge in foreclosures that would significantly impact house prices (as happened following the housing bubble). The two key reasons are mortgage lending has been solid, and most homeowners have substantial equity in their homes.

Last Thursday, CoreLogic reported on homeowner equity: CoreLogic: Number of Underwater US Homes Drops by 15% Annually in the Fourth Quarter

The report shows that U.S. homeowners with mortgages (which account for roughly 62% of all properties) saw home equity increase by 8.6% year over year, representing a collective gain of $1.3 trillion and an average increase of slightly more than $24,000 per borrower since the fourth quarter of 2022. This brought total net homeowner equity to more than $16.6 trillion at the of 2023. …

From the fourth quarter of 2022 to the fourth quarter of 2023, the total number of homes in negative equity decreased by 15%, from 1.2 million homes or 2.1% of all mortgaged properties.

And on mortgage rates, here is some data from the FHFA’s National Mortgage Database showing the distribution of interest rates on closed-end, fixed-rate 1-4 family mortgages outstanding at the end of each quarter since Q1 2013 through Q3 2023 (Q4 2023 data will be released in a two weeks).

This shows the surge in the percent of loans under 3%, and also under 4%, starting in early 2020 as mortgage rates declined sharply during the pandemic. Currently 22.6% of loans are under 3%, 59.4% are under 4%, and 78.7% are under 5%.

With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.

Some simple definitions (for housing):

Forbearance is the act of refraining from enforcing mortgage debt.

Delinquency is the failure to make mortgage payments on a timely basis.

Foreclosure is when the mortgage lender takes possession of the property after the mortgagor failed to make their payments. “In foreclosure” is the process of foreclosure.

REO (Real Estate Owned) is the amount of real estate owned by lenders.

Here is some data on REOs through Q4 2023 …