Last week we reported on a looming wave of evictions on the horizon as the economic consequences of the coronavirus-induced government economic shutdowns begin to rear their ugly heads. Now for more gloomy news, there are also signs of trouble in the mortgage markets.
Mortgage delinquencies soared at a record pace in April. And that was toward the beginning of the pandemic’s economic impact.
As we reported last week, consumer debt continues to break records month after month. Americans owe over $4.3 trillion dollars in revolving debt (primarily credit cards), student loans and auto loans. When you factor in mortgages, the number climbs to $13.54 trillion. That figure was $869 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008 (right before the crash) and 21.4% above the post-financial-crisis trough reached in the second quarter of 2013.
But many mainstream analysts downplay this surge in debt. And on the surface, the numbers do seem to indicate the risk isn’t as big as it was prior to the 2008 financial crisis. But as Wolf Richter explains, the averages conceal a different reality.
Peter Schiff put it pretty bluntly in a podcast last week. We don’t have a booming economy. We have bubbles. And it looks like the air is starting to come out of some of those bubbles. We see signs of trouble, particularly in interest rate-sensitive sectors such as real estate. As just one example, home sales in California have hit the lowest level in a decade. And it’s not just California. We’re seeing declines in many of the “most splendid housing bubbles” in America. Even more troubling is that we’re seeing these tremors and interest rates aren’t historically high.
But they are rising quickly. According to an article in Wolf Street, they may soon hit 6% and that could be the real tipping point.
Remember back when mortgage lenders loosened credit standards making it easier to get a loan and blew up a giant housing bubble?
That’s happening again.
According to a report released by Fannie Mae, lenders facing lower profit margins are trying to expand the borrower pool.
Facing constrained mortgage demand and a negative profit margin outlook, more lenders say they have eased rather than tightened home mortgage credit standards, according to Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey. Across all loan types – GSE Eligible, Non-GSE Eligible, and Government – the net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016.”
American household debt hit an all-time high in the second quarter of 2017, with increases in every major category, from credit cards, to student loans, to mortgages.