MOST DEFAULT SERVICING LEADERS EXPECT SOFT LANDING, SLOWLY RISING FORECLOSURES DESPITE PERSISTENTLY HIGH INTEREST RATES
- 76% surveyed expect home price increases to continue through the rest of 2024
- 57% expect gradual rise in foreclosure volumes in second half of the year
- 51% of loans in loss mitigation expected to permanently perform
- Rising insurance and property taxes represent biggest emerging risk to loan performance
Auction.com, the nation’s leading distressed real estate marketplace, today released its 2024 Seller Insights report, which shows that most default servicing leaders surveyed in Q2 2024 expect a soft landing in the economy, a continued rise in home prices and a gradual increase in foreclosure volumes in the second half of the year.
The report was based on a survey of key default servicing leaders at the eighth annual Auction.com Disposition Summit. Respondents included leaders from banks, nonbanks, mortgage asset owners, government agencies and government-sponsored enterprises.
“Our partners in the default servicing industry are on the frontlines of any emerging risk in the mortgage market, and we communicate regularly with them to identify those risks and build solutions of value,” said Jason Allnutt, CEO at Auction.com. “Nearly halfway through the year, leaders in this industry are telling us that the risk of rapidly rising delinquencies and foreclosures this year remains low and that they expect a soft landing in the housing market and broader economy despite an expectation that mortgage rates will remain relatively high throughout the remainder of the year.”
Unemployment and Mortgage Rate Expectations
On average respondents expected the unemployment rate to end 2024 at 3.6 percent, although nonbank servicers were less optimistic at 4.1 percent. This soft-landing outlook came despite most survey respondents expecting mortgage rates to remain persistently high to end 2024 – 6.3 percent on average.
Home Price Expectations
More than three-fourths of respondents (76 percent) said they expect positive home price appreciation to end 2024 while 21 percent expect a decrease of less than 5 percent and just 3 percent expect a decrease of 5 percent or more.
“Despite the stress of higher-for-longer mortgage rates, demand and pricing for distressed properties sold at auction remains strong, an indication that retail home prices will continue to rise in the next three to six months,” said Ali Haralson, Auction.com President.
Foreclosure Expectations
The majority of default servicing leaders surveyed (57 percent) said they expect a gradual rise of between 1 percent and 4 percent in their organization’s foreclosure volumes through the end of 2024.
Ten percent surveyed expect an increase of 5 percent or more in foreclosure volumes while another 10 percent expect a decrease of 5 percent or more.
“Completed foreclosure volumes have remained at about half of their 2019 levels this year thanks in large part to more robust loss mitigation options coming out of the pandemic,” said Joe Cutrona, Auction.com Chief Business Officer.
Loss Mitigation Performance
Slightly more than half (51 percent) of loans in loss mitigation at the time of the survey were expected to permanently perform, according to respondents. That permanent performance rate is in part thanks to an ample equity cushion for seriously delinquent loans entering the loss mitigation waterfall. Survey respondents estimated that seriously delinquent loans in their portfolio had an average combined loan-to-value (CLTV) ratio of 65 percent.
“The home equity cushion is being creatively utilized by mortgage servicers and policymakers to help distressed homeowners avoid foreclosure,” said Elan Chambers, Senior Vice President of Strategic Partnerships and Business Development at Auction.com.
Emerging Risks
Survey respondents identified the rising “hidden” homeownership costs of homeowners insurance and property taxes as the biggest potential risk for triggering higher delinquency rates in 2024. Respondents assigned 37 percent of a theoretical 100 points of risk to those hidden homeownership costs, followed by rising consumer debt delinquencies with 32 percent of risk and rising unemployment with 15 percent of risk. Commercial mortgage defaults received 10 percent of risk while falling home prices received only 6 percent of risk.
“Although the risk of rapidly rising delinquencies in the near term remains low, there are some signs of consumer and homeowner stress emerging,” said Daren Blomquist, Vice President of Market Economics at Auction.com.
Download Auction.com’s 2024 Seller Insights Report today to gain comprehensive insights into the default servicing and mortgage market.
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