Home Owners Unable to Pay Mortgages Increases

Homeowners are struggling to afford their mortgages, and the problem is only getting worse, according to new data from Freddie Mac.

Single-family serious delinquencies surged in September, while multi-family serious delinquencies also saw an uptick for mortgages.

“As property values increase, so do homeowners’ insurance rates and property taxes—both often included in escrow accounts that affect the total monthly payment,” Kevin Thompson, a finance expert and the founder and CEO of 9i Capital Group, told Newsweek.

“Additionally, many homeowners have adjustable or variable-rate mortgages, which are now experiencing rate hikes. As interest rates have climbed, these mortgage payments have risen as well, making it harder for homeowners to keep up.”

While August saw a single-family serious delinquency rate of 0.54 percent, that number had moved to 0.54 in September.

Still, this is a slight decrease from a year ago in September 2023, when the rate was 0.55 percent.

On a larger scale, the serious delinquency rate has been significantly lower than the 4.2 percent peak in February 2010. But the pandemic brought higher rates as people navigated an uncertain economy, and the rate once again reached 3.17 percent in August 2020.

“What was once affordable has become downright difficult,” Michael Ryan, a finance expert and the founder of michaelryanmoney.com, told Newsweek. “And while the numbers may be below pre-pandemic levels, it’s clear we’re in the middle of an affordability crisis.”

Serious delinquencies include mortgage payments that are three monthly payments or more past due as well as those in foreclosure.

Mortgage rates used to hover below 3 percent, but are now at around 6.5 percent, hitting families hard, experts say. For a typical $400,000 loan, the rate jump translates to an extra $800 each month, Ryan said.

There’s also been a ‘lock-in effect’ due to the high interest rates.

“Think of it as financial quicksand—homeowners would love to sell and move, but who wants to jump from a sub-3 percent mortgage into the deep end with a 6.5 percent one?” Ryan said. “They’re tied to their current homes, which means fewer homes for sale.”

While the overall mortgage delinquency rate is still relatively low, rentals and investment homes are all showing upticks in delinquencies, Ryan said.

“This means landlords and tenants alike are starting to feel the pressure,” Ryan said. “The increase might seem small, but in my experience, this kind of early warning shouldn’t be ignored.”

The current data shows the housing market remains relatively tight, with home prices high with property taxes surging as well.

Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, said people are generally unable to pay their mortgages due to two factors: rising everyday costs and losing a job.

“Inflation continues to put pressure on the cost of living, and while the job market is still strong broadly speaking, some sectors have cut back their workforces over the last year,” Beene told Newsweek, adding the rate of delinquencies is still low by historical standards.

For those homeowners who find themselves in delinquency, the effects can be brutal.

“Delinquencies not only affect homeowners’ credit but can also restrict capital for reinvestment,” Thompson said. “If lenders tighten their lending standards due to slower cash flow from borrowers, it could have a ripple effect, slowing the overall market and potentially causing short- to intermediate-term disruptions across the economy.”