Investors should take note: the housing market still has its issues, notably rising mortgage delinquency rates for some homebuyers.
Above-average and rising delinquency rates among low- to moderate-income first-time homebuyers show that the U.S. housing market still has a few lingering cracks in the foundation — and that should give investors pause.
Despite rising home values and easier access to credit, mortgages made from state-issued municipal bonds designed for entry-level homebuyers continue to see rising delinquency rates, according to a report released this week by Moody's Investors Service.
The semiannual report, which studied data through December, found that Housing Finance Agency delinquency rates for single-family loan programs rose for the sixth straight year, with the 90-plus-day delinquent category reaching a record high of 3.2%.
That compares with the lowest levels of 1.2% measured in December 2006.
Total delinquencies — including 60 days late and foreclosures — also set a record of 8.03%, representing an almost 4% increase from the previous year.
The HFA program is a $44 billion subcategory of the $3.7 trillion muni market that involves issuing bonds to finance mortgage loans to certain entry-level homebuyers.
The program, which has been around since the 1970s, issues the muni bonds to finance mortgage loans, and the mortgages become the collateral for the bonds.
Looking at it from a muni-bond perspective, Moody's analyst Eileen Hawes pointed out that the bonds are still in good shape, with assets-to-debt ratios still hovering around historic average levels of 1.2 to 1.
“Delinquencies are continuing to increase, but based on asset-to-debt ratios, the programs are still healthy and sustainable,” she said.
Ms. Hawes cited high unemployment as the key driver of delinquency and foreclosure rates for HFA mortgages.
“The unemployment rate is projected to remain comparatively high in the near term, and HFA customers are especially susceptible to the effects of joblessness and underemployment,” she said. “We do see the housing market in a recovery; however, the delinquency and foreclosure rates have prevented that from translating to the performance of HFA portfolios.”
Even though the trend has been negative, the broader theme of a gradually stronger housing market has Moody's holding off on any downgrades to the HFA bonds.
This is in line with what most market watchers are now seeing in the U.S. housing market.
“Housing is still depressed and still healing, but right now, the path of least resistance is to the upside,” said Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management LLC.
“It's not as if housing is booming, but we are recovering,” he said. “You have to remember that while the country went through a recession, housing went through a depression.”
