“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: The easing of “stay at home” orders may have got some Californians in a homebuying mood but a growing number of current owners can’t make their loan payments. Coronavirus-related economic woes have more than tripled the number of troubled mortgages in California — the third-largest jump in the nation.
Source: Black Knight
The Trend
In May, 6.85% of California mortgages were estimated to be “non-current,” that’s a troubled-loan category that includes mortgages with missed payments plus those formally in the foreclosure process. The rate’s 228% jump in six months from 2.1% was topped by only two states: Alaska — up 256% — and Nevada — up 236%.
Nationally 7.76% of mortgages are non-current, up 103% since November. Black Knight noted that means 4.3 million U.S. homeowners in May were past due on their mortgages or in active foreclosure, up from 2 million in March.
The Dissection
Various financial stimulus efforts have not increased numerous California borrowers’ ability to make house payments.
It’s not a huge surprise as California’s economy has been battered by a wave of business limitations mandated since March to slow the pandemic’s spread. Those “stay at home” orders are a key reason why California unemployment rate was 16.3% for May.
Yes, foreclosure numbers show record lows. But that’s because state and federal authorities have clamped down on the foreclosure process. But that hasn’t halted a growing share of owners being forced to skip payments and/or seek loan forbearance agreements with lenders.
Look, California’s problems could be worse: California’s peak mortgage problems amid the Great Recession came in February 2010, with 15.65% of loans non-current. (By the way, the state’s record low was 1.53% in December 2004.)
And California’s mortgage woes are nowhere near Mississippi, with the nation’s biggest share of non-current loans at 12.73%. Montana has the fewest troubled home loans at 5.13%.
How bubbly?
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … FOUR BUBBLES!
Not sure why these numbers aren’t setting off more alarms. I’m guessing it’s a bet that a combination of an economic rebound, even more real estate bailouts, and compassionate lenders won’t let this become another housing debacle.
Dare I politely say, I’ve seen this story line before.
To be fair, with the economy slowly reopening there comes a noteworthy bit of promising real estate news: Southern California’s pending home sales have risen for eight straight weeks. That suggests there could be ample demand to scoop up properties if these loan delinquencies eventually force homes to the market.
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June 23, 2020 at 06:43AM
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Bubble Watch: California’s late mortgage payments triple - Inland Valley Daily Bulletin
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