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Introduction

Hold onto your hats, folks! The U.S. mortgage delinquency rates have taken a nosedive, plummeting to an all-time low of 3.37% at the end of the second quarter, driven by a robust job market and prevailing low-interest rates on most home loans^[1]. Seriously delinquent loans (90 days or more past due, or in the foreclosure process) fell to the lowest non-seasonally adjusted rate in 23 years at 1.61%.

The Current State of Mortgage Delinquency

Imagine a world where fewer homeowners are behind on their mortgage payments. Well, pinch yourself, because it's happening right now!

• Economic Recovery: The economy has bounced back like a rubber ball, and homeowners are dancing to the tune of "Caught Up on My Mortgage Blues." The job market's revival is the DJ spinning this track^[1].
• Government Support: Uncle Sam has been handing out life jackets to struggling homeowners, and boy, have they come in handy! These government programs have been like a superhero swooping in to save the day^[2].
• Low-Interest Rates: Loans that were issued prior to the recent hikes were so low; you'll need a magnifying glass to see them. Homeowners were refinancing left and right, making their monthly payments feel like a gentle breeze instead of a hurricane^[1]. It’ll be hard to give up these low rates, and we are seeing a tale of the homeowners with a sub-3% mortgage rate and those that are in the current rate environment.

The Housing Market's Wild Ride

Source: TradingEconomics.com 

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The housing market has been on a wild ride, and it's not just because of those low delinquency rates. Buckle up, and let's explore:

• Increased Home Prices: Homes are still flying off the shelves like hotcakes at a Sunday brunch, with inventory looking historically low still. Median home prices have softened year-over-year by roughly 2.4% but pales in comparison with the historic appreciation we've seen in the last few years. With fewer foreclosures, prices are holding and in some markets soaring higher than a bald eagle on the Fourth of July^[1]. Even Zillow believes we'll see home price appreciation over the next year into 2024.
• Affordability Crisis: Remember when you could buy a house without selling a kidney? Those were the days! Now, 75% of homes might as well have a "millionaires only" sign on the front lawn^[1]. There's a lot to unpack here, so we'll do this in subsequent articles.
• Lending Practices: Lenders are still originating mortgages, of course at current interest rates. The government is also very actively engaged in propping up the U.S. housing market. "You get a mortgage! You get a mortgage! Everybody gets a mortgage!" (Oprah voice)^[1].

Potential Pitfalls and Potholes

Life's not all rainbows and unicorns, and neither is the mortgage world. Here's what could rain on our parade:

• Risk of Negative Equity: If home prices drop by 5%, some homeowners might find themselves underwater. And not in the fun, scuba-diving way^[2].
• End of Government Support: When Uncle Sam packs up his life jackets, some folks might find themselves up the proverbial creek without a paddle^[2].
• Interest Rate Changes: If interest rates rise, it could be like stepping on a Lego in the middle of the night. Painful and unexpected^[1].

Conclusion

The all-time low in U.S. mortgage delinquency rates is a roller coaster ride worth taking and noting. It's filled with highs, lows, twists, and turns. So grab your popcorn, enjoy the ride, and remember: in the world of mortgages, the only constant is change. And perhaps the occasional dad joke about interest rates. Many real estate bears believed that we would see a massive housing correction early in 2023, but so far the residential real estate market has held up.

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[1]: US mortgage delinquency rates fall to all-time low

https://www.msn.com/en-us/money/realestate/us-mortgage-delinquency-rates-fall-to-all-time-low/ar-AA1f7Avg 

[2]: US Mortgage Delinquency Rate Drops to All-Time Low in May, CoreLogic Reports https://finance.yahoo.com/news/us-mortgage-delinquency-rate-drops-120300145.html 

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