Rising Home Loan Mortgage Delinquencies Forecast Lower Home Prices

Rising Home Loan Mortgage Delinquencies and Defaults Forecast Lower Home Prices

Even as the economy has begun its slow recovery, the mortgage crisis appears to continue sticking its troubling neck out, as more homeowners have had trouble keeping up with their payments and are in mortgage default or facing foreclosure. According to data released by the Mortgage Bankers Association last week, 9.38 percent of homeowners with a mortgage had failed to make at least one payment in the first quarter of the year. When adjusted for seasonal variations, that figure rises to over 10 percent, a record high, up from 8.22 percent last year. About 4.3 million homeowners, who comprise around 8 percent of all citizens with a home loan mortgage, are now at risk of losing their homes, either because they missed three straight months of mortgage payments or because they are already in the foreclosure process.

What These Figures Mean for Home Prices

Although some of these troubled homeowners may benefit from loan modifications, the majority of these homes will go up for sale as foreclosures or as short sales. Due to this sharp rise in mortgage delinquencies and mortgage loan defaults, many analysts have forecasted a significant drop in home prices, as most of these homes go on the market for greatly discounted prices. This past spring, the federal tax credit for homebuyers helped improve home sales, but since their expiration on April 30, home mortgage applications fell by almost 30 percent last week, their lowest level since 1997. According to the CoreLogic Home Price Index, home prices declined 0.3 percent from February to March.

This drop in home prices, which occurred in spite of the extreme decline in mortgage rates, provides an appealing opportunity for first-time homebuyers looking for a good deal. Nevertheless, these lower prices pose a significant risk to current homeowners, many of whom already owe more on their mortgages than their home is actually worth. This dip in prices can mean further negative effects on their equity, which will have probably already suffered through the subprime mortgage crisis.

These trends point to ongoing problems and issues that call for swift resolution, even as the economy is in the first stages of a long and slow recovery process. As many entry-level buyers in the market for their first home are benefiting from lower home prices, current homeowners are also facing distressed equity and facing foreclosure as the rate of mortgage delinquencies increases. As the economy continues to recover, it will be necessary to continue facing the mortgage crisis head on.

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