Delinquencies hit new lows, foreclosure inventory inches up

Delinquencies dropped to a record-breaking low for the second month in a row during April; but the number of borrowers 90-days or more late, while also falling, remains above pre-pandemic levels.

The share of all mortgages late but not in foreclosure was 2.8%, down from 2.84% the previous month, according to Black Knight’s latest monthly delinquency report. A year ago, the delinquency rate was 40% higher. Serious delinquencies totaled 640,000 during April, down from 694,000 in March and nearly 2.4 million at the pandemic’s peak, but still above levels closer to 400,000 prior to the pandemic.

The drop in late payments overall suggests that despite forecasts suggesting a recession could be in the offing, the economy remained particularly resilient at least through April. The month is historically the worst for loan performance, so an improvement in delinquencies in it is notable, according to a spokesman with Black Knight.

However, the serious delinquencies remaining in the market and relative upticks in some foreclosure measures suggest the market is still working through some entrenched distress.

Foreclosure inventory was up by 4,000 units from the previous month and 20,000 from a year earlier at 173,000. Also, while April’s 21,400 foreclosure starts were down nearly 12% from March, they were more than four times as high as they were a year ago.

While high levels of home equity in most areas have limited foreclosure activity to date, signs of overvaluation in some housing markets suggest certain borrowers may be heading toward a point where they have less of a buffer than in the past, and foreclosure activity could increase in the future.

“If we do have overpriced markets that correct in the next year as foreclosure processes are restarting, that could result in at least a marginal lift in the number of properties that go into foreclosure,” said Rick Sharga, executive vice president of market intelligence at Attom.

Homes in 88% of metropolitan areas have price-to-income ratios above their 15-year averages, according to Standard & Poor’s. Also, more than half of investors have identified housing markets they’ve been active in as overvalued, according to a recent Auction.com survey. (The share is relatively lower in the Auction.com survey because it excludes markets investors haven’t seen as attractive.)

“If you happen to be one of those borrowers in an overpriced market that suddenly corrects, you could very quickly go from having a little bit of positive equity to being underwater,” Sharga said in an interview.