Early Warning Signs

This year’s pandemic has had some pretty far-reaching effects. It’s safe to say that none of us have completely avoided those effects, and real estate is no different.

Congress and the Federal Reserve have acted swiftly and decisively to provide tremendous aid, support, and stimulus. This has produced some interesting side effects. Specifically, interest rates have fallen significantly, which allows buyers to purchase more house for the same monthly payment. This has contributed to a rise in home prices, which are up as much as 8-10% over last year. This is great news for sellers!

On the flip side, the economic problems have caused job losses for many, which is unfortunate. Some of the cracks are starting to show, with mortgage delinquencies rising. Per the Colorado Sun (see graphic) FHA-backed loans (green line) are failing at more than double the rate of other mortgages. These FHA borrowers tend to purchase with lower down payments, which makes them less likely to be able to tap equity when trouble hits.

Colorado's Mortgage Delinquency Rates

It’s unlikely that we will see a crash like 2007 repeated any time soon, but it looks like a rough road ahead for some of these homeowners.

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