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Economist: Foreclosures could hit bottom in 2019

Foreclosures have been declining for years, and mortgage delinquencies hit an 18-year low this past October, but CoreLogic Chief Economist Frank Nothaft says 2019 likely won’t be the year when mortgage performance takes a turn for the worse.

“All the ingredients are there for continuing to promote low delinquency rates and to push them [delinquencies/foreclosures] a little bit lower in the next year,” Nothaft told Scotsman Guide News.

foreclosure“I think it is close to the low, but I think it will probably go a little bit lower in 2019," he added.

The national 30-day delinquency rate stood at 4.1 percent as of this past October, down 1 percentage point year over year and the lowest level for an October in at least 18 years, CoreLogic reported this week.

The foreclosure inventory rate, or the percentage of properties in some stage of foreclosure, was 0.5 percent in October, which has remained steady since this past April.It was also the lowest rate for an October since 2005.

Nothaft said the near 50-year low in national unemployment and a healthy boost in incomes bodes well for solid mortgage performance in 2019. Also, after years of robust home-price growth, homeowners have record levels of home equity at their disposal to tap should they lose their jobs or run into financial difficulties this year. Nothaft also said mortgage underwriting has remained disciplined throughout the recovery.

“Underwriting is much more prudent today than it was back in 2004-06 when we had the bubble,” Nothaft said. “That prudence reflects the fact that we basically don’t have subprime mortgage lenders. We don’t have no-doc liar loans anymore. Everything is pretty much full doc and prime borrowers. That is a big change from ‘04-‘06.”

Nothaft said that while most areas have seen delinquencies and foreclosures fall, there are exceptions. North Dakota was the only state that didn't post an annual decline in delinquencies as of October, which may be linked to lower oil prices.  

“The oil in North Dakota is mined out of the shale, which is more expensive to produce than just pumping it out of the ground.That means you need a higher level of oil prices in order to make that economical,” Nothaft said. “There have been cutbacks and layoffs in the oil-production fields in North Dakota. Unemployment is still relatively low in North Dakota, but it has gone up a tick. The decline in employment has manifested itself in terms of the increase in the delinquency rate.”

Nothaft said communities affected by natural disasters, particularly the hurricanes in Florida and the Carolinas and wildfires in California, saw a surge this fall in delinquencies.

“Even though nationally the picture looks good, there are isolated pockets across the U.S. that have been hurt by a weakening local economy, like North Dakota, or because of natural disasters and dislocated families, and businesses,” he said.

Nothaft also said that while record levels of home equity will help many people weather the next downturn, the mortgage market isn’t recession proof.

“There will be an increase in foreclosure, most likely from those people who purchased in the last year or so or took out mortgages in the last year, Nothaft said. “More recent buyers haven’t had the opportunity to build a lot of equity through price growth because they have owned their home for such a short period of time. There will be an uptick in foreclosure and delinquency, but not like what we saw during the Great Recession.” 


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