Commercial Mortgage Delinquencies Quickly Climbing

Click on Image for a Larger View.

Crains Chicago today showed a chart that shows just how bad the Great Recession is impacting the rate of commercial mortgage delinquencies. At the end of Q1-2009, 3.6% of American Commercial mortgages were delinquent and 5.6% of Chicago area loans were behind in their payments---Both are almost 4 times worse than what was typical during 2006.

Of the Top-100 US Metro Areas, Foresight Analytics says that these 10 areas have the worst delinquency rates for the commercial mortgage market:

1. Warren-Farmington Hills-Troy, Michigan 6.3%
2. Miami, Florida -- 5.7%
3. Chicago -- 5.6%
4. Grand Rapids, Michigan 5.4%
5. Milwaukee, Wisconsin 5.2%
6. Indianopolis, IN -- 5.1%
7. Jacksonville, FL 5.0%
8. Sarasota, FL--4.9%
9. Dayton, Ohio -- 4.5%
10. Lake County, IL / Kenosha County, WI 4.4%

In the 1990's commercial mortgage delinquencies peaked around 9% and it's likely that as this recession lingers, unemployment climbs and vacancies rise--the rate of delinquencies will continue to escalate.

What I found quite interesting is that most of the "top-10" come from the Midwest and Florida---but as we all know the credit crunch has hurt consumers in California, Nevada, Arizona and Oregon as hard as the midwest---so I'm guessing in a few more quarters time you'll be seeing communities like Phoenix, LA, Las Vegas, and Portland creeping to the top of the list as well.

Fannie & Freddie's Serious Delinquencies Continue to Worsen

Click on Image for a bigger chart

Data released from Freddie and Fannie show that the rate of serious delinquencies continue to worsen in March (Freddie) and February (Fannie).

Freddie saw a 2.29% serious delinquency rate in its single family home mortgage portfolio, while Fannie Mae saw almost 3% of it's single family home loan portfolio in the seriously delinquent category. [both of these data points are shown as bars & use the left hand scale on the chart].

Fannie and Freddie have large amounts of prime mortgages on their books and as you can see, as the unemployment rate and underemployment rate in the US continue to increase (Lines on the chart using the right hand scale), the numbers of people with prime mortgages who fall behind and run into payment problems continue to increase.

Since we can see that the unemployment continued to rise in April, 2009 I think we can safely forecast that the GSE's delinquency rate will continue to climb upwards.

Two Thirds of Las Vegas Home Mortgages are Underwater

According to zillow some metropolitan areas of the country have just HUGE amounts of homes with mortgages in a negative equity situation.

Click for a Larger Image

The hardest hit locations include Las Vegas, NV (~2/3rds of home owners are underwater), many parts of California (Stockton, Modesto, Merced, Riverside) and Phoenix and Florida.

According to zillow, around 22% of homeowners with a mortgage in the US have negative equity. This makes it much less likely that these home-owners would be able to refinance---and should a negative life event (health issue, divorce, loss of job) occur you count on increased mortgage delinquencies, defaults and foreclosures.

Zillow says that 22% of Mortgages are Underwater

According to zillow, at the end of Q1-2009 22% of homes with mortgages on them were underwater--i.e. the debt outstanding on the home was greater than the value of the home.

This is up from 17.6% of motgages being underwater in Q4-2008 and 14.3% in Q3-2008.

Inflation or Deflation

Every so often I like to post a light hearted item. Hat tip to Greg Mankiw for featuring this funny video of Merle Hazard and Bretton Woods singing a country song about if we're heading for inflation or deflation.

Either scenario is bad for the mortgage market---If there's inflation, mortgage rates will rise causing slower principal repayments and possibly lower property values in the short term (as the monthly payments increase b/c of higher interest rates). If there's deflation, consumers will postpone spending b/c their dollars will buy more stuff in 1 year than what it will buy them today.