Delinquency Rate Breaks Record

“Delinquency Rate Breaks Record” is the headline for November 19th, 2009 according to a published survey from the Mortgage Bankers Association and based on records going back to 1972. The third quarter delinquency rate broke the record previously set last quarter and the overall rate of total mortgages somewhere in the foreclosure process was a whopping 14.41% on a non-seasonally adjusted basis. This represents the highest ever recorded in the delinquency survey.

“The decline in mortgage performance continues” according to the release on the Mortgage Bankers Association web site. One of the reasons stated is that “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people…”

So, what does all this mean to real estate investors? Here’s my “3 and It’s Free” insight…

1. Downward pressure on home prices will continue so make sure that you don’t just find a good deal but look for great deals. They are out there and it looks like we are in a “target rich environment” to quote an Air Force phrase.
2. Delinquency rates being this high (and apparently rising) give pause to ensure that your existing deals and housing rentals should be in demand as people leaving their own homes need places to live. But make sure that any deals underway don’t sit in the middle of a sea of foreclosures and deteriorating neighborhoods. Unless you want to sit on a vacant house, you need to consider whether people want to live alone on a street where houses are targets for vandals, vagrants, safety hazards (remember that kids love to explore and mom’s don’t like it when kids get hurt), and pest outbreaks (think rat population).
3. Although many investors new to the business want to jump in because they think prices can’t go lower, need to take a deep breath and count to three, because prices will continue to deteriorate due to the Option ARMs and Alt-A loans coming due through 2012. (chart below courtesy of Credit Suisse)