More Americans Can’t Afford Their Mortgages

Despite the declining rates and the robust economy that characterized the U.S. during the fourth quarter, the Federal Reserve’s pursuit of lower inflation has proven to be an obstacle for the American housing market.

The consequence of that pursuit, which pushed up borrowing costs on U.S. households, is a 16 percent year-over-year surge in mortgage delinquencies (60 days past due), according to TransUnion’s fourth-quarter Credit Industry Insights report, exposing the growing struggle of consumers in the face of evolving macroeconomic uncertainties.

TransUnion’s report, produced from billions of updates received each month from banks, credit unions, finance companies, auto dealers, mortgage companies, retailers, student loan providers and public records, found that a total 1.3 percent of all consumer-level mortgages in the U.S. were in serious delinquency in the fourth quarter of last year.

With roughly 84 million mortgages active in the U.S., according to data from LendingTree, that would mean about 1,092,000 Americans are more than 60 days past due on their mortgages.

While that may seem alarming to some, it isn’t nearly as bad as what happened in the aftermath of the great financial crisis (GFC) in 2008, according to Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

“We’re still in a pretty good spot, especially when you’re looking at 60 days past due,” Raneri told Newsweek during an interview on Wednesday. “So it has inched up a little bit, but it’s still not come back to what would be considered pre-GFC or probably even pre-pandemic.”

Asked whether or not the slight uptick is of concern, Raneri said, “I don’t think so. Of course, people in the industry are watching it to see if it’s becoming a bigger problem, but I don’t think that it’s something that is an indication of a bigger problem.”

She continued that the delinquency issue is not a “systemic” problem reflective of the GFC, partly due to stricter lending standards, and that back in 2008, people had “so little equity in their homes.”

“We don’t have anything like that systemic problem today,” she added. Indeed, the amount of mortgages that are 60 days past due are ebbing at historically low levels long term, dating to 2005.

The Burden of Rising Rates

While the uptick in mortgage delinquencies isn’t too concerning, it is still essential to understand the contributing factors. Inflation, and the relentless climb of mortgage rates throughout the year and into the first weeks of the fourth quarter, as the Fed hiked interest rates 11 times in 2022 and 2023, dealt a significant blow to the mortgage market.

That increase in rates translated into higher borrowing costs (monthly mortgage payments) for homeowners who purchased while interest rates were at their highs. For some, it has become increasingly challenging to meet the higher obligations, potentially contributing to the year-over-year surge in delinquencies that TransUnion has documented.

“Persistently high mortgage rates remain a significant headwind in the mortgage market, particularly affecting demand for refinance,” Satyan Merchant, senior vice president, automotive and mortgage business leader at TransUnion, shared with Newsweek in an emailed statement.

“Purchase originations will continue to drive the mortgage market over the next several quarters, as demand for refinance will depend on mortgage rates falling significantly below current high levels,” Merchant said.

Mortgage rates had been on a grinding descent over the fourth quarter, according to data from Mortgage News Daily, but that’s not the case now. Falling from highs of over 8 percent seen in October, to lows of 6.61 percent by the end of the year after the Fed hinted that it has concluded its rate hike campaign, rates have continued their upward trajectory, climbing to just under 7 percent on Thursday.

The Impact on the Housing Market

The surge in mortgage delinquencies is casting a shadow over the housing market’s prospects, according to TransUnion. As those homeowners 60 days past due grapple with the threat of foreclosure proceedings, it’s affecting their confidence and ability to participate in the market—however, the worst of it may be behind us.

According to TransUnion’s data, origination volumes (the total dollar value of mortgage loans originated for the purchase of property) in the mortgage market saw a year-over-year decline of 22 percent to 1.2 million in the third quarter. While the decline is substantial, it’s worth noting that it represents the smallest year-over-year decline in the past seven quarters, suggesting that the “mortgage origination market may be near its bottom,” according to TransUnion.

However, there are challenges, as purchase originations (the acquisition of the property itself) were down 18 percent year-over-year for the quarter, and rate and term refinance experienced a 27 percent decline.

Additionally, cash-out refinances were down by 44 percent year-over-year in the fourth quarter.

Despite the challenges, there’s a shift in the generational landscape of mortgage originations, with Gen Z’s share rising from 9.6 percent in the third quarter of 2022 to 13.2 percent in the same period a year later, indicating that those just entering adulthood are entering the traditional home-buying market.

In the home equity market, post-pandemic originations have slowed but remain above recent historic norms, reaching 582,000 in the third quarter, the second-highest for that quarter since 2008. The originations were evenly split between HELOCs and HELOANs, TransUnion said, primarily driven by Gen X and baby boomer homeowners.