For the 12th straight quarter, the rate of borrowers 60 days or more delinquent on their mortgages dropped. According to TransUnion’s latest mortgage report the mortgage delinquency rate at the end of Q4 2014 was down to 3.29%, a 14% decline over the last year.
However, average mortgage balances are increasing. Per consumer, the AMB increased to $187,139 in Q4 2014, from $185,496 a year ago. This continues the recent trend of annual growth, since Q4 of 2012 ended with 183,339 as the average balance. The largest mortgage balance increases were realized in the “Super Prime” risk category, with a rise of 3% year to year.
“The mortgage delinquency rate continues to be well controlled as it slowly recedes to pre-recession levels, driven primarily by the ongoing clearance of the foreclosure backlog. More recent vintages have been performing exceptionally well,” said vice president of research and consulting at TransUnion, Ezra Becker. “A bigger story this past quarter is the continued rise in mortgage balances. Much of this gain can be attributed to those consumers who took advantage of a low interest rate environment to purchase homes with jumbo mortgage loans. The share of these loans among all mortgage originations increased by 8% in Q3 2014 from 6.8% in Q3 2013 and 5.8% in Q3 2012.”
According to the report, the fall in delinquency rates and rise in average mortgage balances are both nationwide trends. Average balances showed gains in every state except for Wisconsin and Rhode Island. On both a quarterly and yearly basis, the mortgage delinquency rate dropped in every single state and the District of Columbia.
The largest yearly declines in mortgage delinquency rates occurred in the formerly high-default market of Miami, where they were down 30% to 7.18% in Q4 2014. Declines in mortgage delinquency were widespread, from Boston (down 12.8% from 3.08% to 2.69%) to our own city of Los Angeles, which was down 21.5% to only a 2.40% delinquency rate. “These are significant data points, because they show that mortgage delinquency rates continue to drop across the country—both in those markets with elevated delinquencies and in those that have already experienced major drops,” said Becker.
The same trend of delinquency rates dropping and mortgage debt levels rising was visible across all age groups. For those 30 and under, the yearly mortgage delinquency rate declined 24.3%. This same group also saw relatively large debt-per-borrower increases, rising from $149,778 in 2013 to $151,692 in 2014. But this age group didn’t have the largest increase, the average balances among consumers aged 40-49, rose from $212,877 in Q4 2013 to $216,201 in Q4 2014.
The TransUnion report tracked 53.2 million mortgage accounts at the end of Q4 2014, a slight rise from 2013’s 52.9 million. This is still 6 million fewer mortgages when compared to the post-boom numbers of 2009. New account originations were up up slightly, increasing 7% quarter over quarter. However, origination levels were still significantly lower, down 20%.
Another positive shift in the mortgage market, is the risk tier composition of mortgage originations. The market continued to move away from super prime and into lower tier groups in 2014. Super prime originations were down from 32.1% in 2013 to 27.8% in 2014. Conversely, the share of non-prime originations increased from 14.5% in Q3 2013 to 16.7% in Q3 2014.
“Despite more non-prime originations, we are seeing continued declines in the mortgage delinquency rate,” said Becker. “This points to the ongoing re-emergence of consumers prioritizing their mortgage payments, bolstered by an improving employment situation. We are in a far better position than we were immediately post-recession, and materially better than we were even one year ago.”
In Los Angeles, a city where housing affordability is among the lowest in the country, the continuation of low mortgage rates is needed to help the market stay strong. It’s a good sign that lenders are finally issuing more loans outside the super safe super prime tier. But in a city where the median home price is hovering at half a million, we aren’t far from every loan approaching jumbo loan territory. While prices is Los Angeles real estate continue to rise and price even more potential buyers out of the market, the number of non-highend sales is flat or dropping. For the most part, lenders are doing their job to help, but Los Angeles will have to continue to find the pricing sweet spot.
If you have any questions about the current state of the Los Angeles real estate market, please don’t hesitate to call us at 323-829-8811. Or email Susan Andrews at susan@luxurylahomes.com.
Contact us anytime if you ever wonder “What’s my home worth”? Or visit HollywoodHillsValue.com for a free no obligation home valuation.