The combination of rising mortgage rates and inflation rates at levels not seen in decades is understandably causing some concern among homeowners and potential homeowners about the state of the US housing market. There has been a flurry of data points over the past month which add to the consternation including the following:
- The National Association of Homebuilders (NAHB) sent a letter to the Biden administration which was signed by 10,000 members warning of the risk of a housing crisis in the United States without government action.
- Fannie Mae‘s March 2022 data release indicated a sharp deterioration in buying conditions as measured by the company’s Home Purchase Sentiment Index.
- According to the Mortgage Bankers Association the number of mortgage applications has been declining for several weeks including an 8.3% decline in the week that ended April 22, 2022. Of note, the Refinance Index was down 71% compared to a year ago in the week that ended April 22, 2022.
While the data points universally point to a slowing of fundamentals in the US housing market, when it comes to the actual health of the market, the performance of homeowner credit is the more important indicator to monitor in our view.
The US Housing Market Remains Healthy (For Now)
In addition to the above data points we also looked at statistical data from Black Knight, Inc. over the past 3 years which is based on the company’s database of mortgage loans. This data gives us a picture of how US homeowners are actually doing with their mortgages which is a very important measure of US housing market health. The first chart which is also shown above, shows that through the month of March, the total U.S. loan delinquency rate remained low.
In fact at 2.84%, the loan delinquency rate was the lowest it has been in 3 years. As a reminder, this statistic indicates the percentage of mortgages where the borrowers are 30 or more days behind on their mortgage payments. Importantly, the delinquency rate fell from February to March despite the increase in the inflation rate. This statistic alone would suggest that the US housing market remains healthy. But there is another measure that is important to monitor which does indicate a troubling trend worth watching.
The number of homes that are in foreclosure increased in March to 169,000 – this is the 3rd month in a row that this statistic has increased. While the number of homes in foreclosure remains well below the 3 year average of 198,000, the steady increases in recent months is a troubling trend for the US housing market. For this reason our believe is that the US housing market remains healthy overall but that there are reasons to be cautious and we especially will be paying close attention to the foreclosure statistics in the coming months.