Rising hidden homeownership costs — namely homeowners insurance and property taxes — was identified as the top risk for potentially triggering higher mortgage delinquencies in 2024, according to default servicing leaders surveyed at the eighth annual Auction.com Disposition Summit in April. Those surveyed included representatives from banks, nonbanks, mortgage asset owners and investors, government agencies and government-sponsored enterprises (GSEs).
Survey respondents assigned 37% of a hypothetical 100 points to rising hidden homeownership costs, the most of any potential risk factor. Not too far behind was rising consumer debt delinquencies, which received 32% of the risk assigned by survey respondents. Rising unemployment was assigned 15% of the risk, and commercial loan defaults 10% of the risk, while falling home prices were assigned only 6% of the risk.
Overall, survey respondents weren’t expecting that any risk of rising delinquencies would translate into skyrocketing foreclosure volume in the near future While two-thirds of those surveyed said they expect their organization’s completed foreclosure volume to increase between April and the end of the year, most of those (57%) said they expect that increase to land somewhere in the range of between 1% and 4%. Only 10% said they expect foreclosure volumes to increase between 5% and 9%, and none said they expect foreclosure volumes to increase 10% or more.
There was a sharp divergence in foreclosure volume expectations among survey respondents based on loan type. Among those who said that privately owned, non-agency mortgages account for the majority of loans in their servicing portfolio, 100% expect an increase in foreclosure volumes between April and the end of the year.
Similarly, among those who said that government-insured mortgages (Federal Housing Administration, U.S. Department of Veterans Affairs, U.S. Department of Agriculture) account for the majority of loans in their portfolio, 91% expect rising foreclosure volumes. But for those who said that conventional mortgages owned by the GSEs account for the majority of loans in their portfolio, only 38% expect increasing foreclosure volumes between April and the end of the year.
The overall mortgage delinquency rate of 3.2% in March was up from its all-time record low of 2.92% a year ago, but it was still well below the long-term average of 4.51%, according to data from the Intercontinental Exchange March Mortgage Monitor report. Meanwhile foreclosure starts have been slowly trending higher over the last three years but are still more than 15% below pre-pandemic levels, according to data from Attom.
More than 67,000 foreclosure starts were recorded in public records in the first quarter of 2024, up 2% from the previous quarter and up 4% from a year ago. It was the 12th consecutive quarter where foreclosure starts increased on a year-over-year basis, but the 67,000 was still 17% below the more than 81,000 foreclosure starts in the first quarter of 2020.
A metro-level analysis of the Attom data in March does show that foreclosure starts exceeded pre-pandemic levels in nearly one-third of markets (51 out of 174 analyzed). Those markets included Houston (142% of pre-pandemic levels), Riverside-San Bernardino, California (103%), Tampa-St. Petersburg, Florida (104%), Orlando (118%) and San Antonio (106%).
All of those markets are in top-10 states for increases in effective homeowners’ insurance rates between 2018 and 2023, according to an analysis by S&P Global Market Intelligence. Texas saw the biggest increase in the country over that timeframe (59.9%) while California came in at seventh highest (43.7% increase) and Florida came in at eighth highest (43.2% increase).
The overlap of rising foreclosure starts and rising insurance rates could be a coincidence. It could also be an early sign that higher hidden homeownership costs are beginning to trigger more distress in states most impacted by those higher costs. ●
Author
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Daren Blomquist is vice president of market economics at Auction.com. In this role, Blomquist analyzes and forecasts complex macroeconomic and microeconomic data trends to provide value to both buyers and sellers using the platform. Blomquist has been cited by thousands of media outlets nationwide, including major news networks, The Wall Street Journal, The New York Times and USA Today. Prior to Auction.com, Blomquist worked at Attom Data Solutions.