Americans Are Late on Their Mortgages

Dave:
More Americans are falling behind on their mortgages, which understandably is causing fear that another 2008 style bubble and crash could be coming to the housing market in the near future. But is the recent data showing a rise in delinquencies, a sign of an impending collapse, or is something else going on here today we’re going to explore what’s going on with American homeowners, the mortgage industry, and yes, I will talk about that one chart that’s been making its rounds and causing mass hysteria on social media over the last couple of days. Hey everyone. Welcome to On the Market. It’s Dave Meyer, head of real Estate investing at BiggerPockets. On today’s show, I’m going to be talking about what’s happening with mortgage delinquencies here in 2025, and there are a few reasons this should really matter to you and why I wanted to make this episode as soon as possible.
First reason is that the overall health of the mortgage industry really matters a lot. I’ve said this many times over the last few years, but the housing market is a very unique asset class because as you know, housing is a need. And as we say often on this show, 80% of people who sell their home go on to rebuy their home. This makes it different from things like the stock market where no one needs to own shares of a stock, and if you decided you want to take some risk off the table, you could sell your stock and then just not reinvest that money. But that’s not really what happens in the housing market. The housing market tends to be less volatile because people want to stay in their homes if things happen that make the housing market adverse or there is more economic risk across the entire country.
People really just stay in their homes as long as they are able to maintain and pay their mortgages. And that’s the reason that there is rarely a real crash in real estate unless homeowners cannot pay their mortgage rates and there is forced selling. And that’s why mortgage delinquencies matter so much because the main way that a real crash, a significant price decline can happen in the housing market is when homeowners just cannot pay their mortgages anymore. Can there be corrections, modest declines in home prices without forced selling or mortgage delinquencies? Yes, but a crash that is a different situation. And if you’re wondering what happened in 2008 because there was definitely a crash then, well, the situation that I was just describing with forced selling is exactly what happened. Poor credit standards, basically they would give a loan to anyone proliferated in the early two thousands, and this led to rapidly increasing mortgage delinquencies because these people were qualifying and getting loans that they really didn’t have any business getting.
They weren’t really in a position to be able to repay them. And so people who got these loans eventually over time started to default on these loans and that created for selling because when banks aren’t getting their payments, they foreclose on people. Prices start to drop when there’s that increase in supply that put people underwater on their mortgages, that leads to short sales more foreclosures, and it creates this negative loop. And we saw the biggest drop in home prices in American history, but since then, since the 2008 great financial crisis where we did see this massive drop in home prices, mortgage delinquencies have been relatively calm. In fact, for years following the great financial crisis, the trend on delinquencies has been one of decline. It peaked in 2009 at about 11% and then pre pandemic it was down to about 4% back in 2019. And of course then things got really wonky, at least from a data perspective during the pandemic because delinquencies shot up initially to about 8.5%.
But then the government intervened. There were forbearance programs, there were foreclosure moratoriums. And so the data on all foreclosures and delinquencies sort of swung in the other direction and we saw artificially low levels. But we’ve seen that data and the trend lines start to normalize from 2022 to about now when a lot of those forbearance programs ended. And it is worth mentioning that although there are some really loud people on social media and YouTube saying that foreclosures would skyrocket, one’s forbearance ended, that just didn’t happen. Delin could see rates have been very low at about three point a half percent, which again is about a third of where they were in 2009. And that has remained even in the three years since forbearance ended. And from all the data I’ve seen, and I’ve looked at a lot of it, homeowners are paying their mortgages. So then why is this in the news?
What is all the fuss about recently? Well, there has been some recent data just in the last couple of months showing an uptick in delinquencies, and there’s actually been this one chart that has really gone viral and is making its rounds on the internet that is causing a massive stir and some straight up panic in certain corners of the market. But the question is, does this data actually justify the panic and concern that people have? We’ll actually take a look and dive deep into what is happening over the last few months right after this break.
Welcome back everyone to on the market. Before the break, I explained that for the last 15 years or so we’ve been seeing homeowners in strong positions, but as I said at the top, some of the trends have been showing signs of changing. So let’s dig into that. Let’s see what’s actually been happening in recent months. First things first, the big picture, and when I say the big picture, and I’m going to cite some stats here, there are different sources for delinquency rates and it can get a little bit confusing. There is information from a company called ice. We get some from the Urban Institute. We get some directly from Fannie Mae and Freddie Mac. And then on top of that there are also all sorts of technical definitions of delinquencies. There’s 30 day delinquencies, there’s serious delinquencies, there are foreclosure starts, so you might hear different stats, but I’ve looked at all this data, I assure you, and the trend is the same for all of them.
So even though the exact number you might hear me cite might be a little different than some other influencer, what you read in the newspaper, what we really care about when we’re looking at these big macroeconomic things is the trend. So the big picture, at least what I’ve seen, and again this is just looking over a couple of different data sources and sort of aggregating the trend, is that the delinquency rate is very low for the majority of mortgages. What we’re seeing is a delinquency rate that is still below pre pandemic levels. And just as a reminder, I talked about how the delinquency rate dropped from 2009 when it peaked down to before the pandemic, then things got crazy, but the delinquency rate is still below where it was before things got crazy, and that is a really important sign and it is still less than a third.
It’s close to a quarter of where it was during the great financial crisis. So if you take one stat and one thing away from this episode, that is the really important thing here is that overall delinquency rates are still very low and they’re below pre pandemic levels. Now we’re going to break this down into a couple of different subsections. There are some interesting things happening. The first thing I want to sort of break down here is the most vanilla kind of mortgage, which is a Freddie Mac or Fannie Mae mortgage for a single family home. And if you’ve heard of conventional mortgages, those actually make up about 70% of mortgages. So we’re talking about the lion’s share of what’s going on in the residential market here. And if you look at the serious delinquency rates, so this is people who are 90 days plus late or in foreclosure, that rate for single family homes is less than 1%.
It’s at about 0.6%. So put that in perspective. Back in 2019 before the pandemic, it was a little bit higher at about 0.7%. When we look at where this was back in 2008 and 2009, it was at 4%. It was at 5% eight to 10 times higher than it was. And so if you see people saying, oh my God, we’re in a 2008 style crash. Now just keep this in mind that we are literally like 10 or 12% of the number of serious delinquencies that we were back then. It’s just a totally different environment Now to be sure they are starting to tick up a little bit, and I’m not really surprised by that given where we are at this moment in the economy where we are in the housing market cycle. But again, these things, they go up and down, but by historical standards, they are very, very low.
Now, there is one interesting caveat within the single family homes that I do think is worth mentioning, and I have to actually brought it up on previous episodes, but we didn’t talk about it in that much depth. So I wanted to go into it a little bit more today. And that is a subsection of the market, which is FHA loans and VA loans. And by my estimate the data I’ve seen FHA loans which are designed for more low income families to help provide affordability in the housing market makes up about 15% of mortgages. So it’s not completely insignificant, but remember that this is a small subsection of the total mortgage pool delinquencies, at least serious delinquencies for FHA loans are starting to go up and are above pre pandemic levels. And that might seem really concerning, but it’s important to note that they have been above pre pandemic levels since 2021 and 2022.
So this is not something that has changed. It has started to climb a little bit more over the last couple of months. But when you zoom out, and if you’re watching this on YouTube, I will show you this chart and you can zoom out and see that relative to historical patterns. This is still really low, but this is something I personally am going to keep an eye on. I do think it’s important to see because I think if there’s going to be some distress and if there’s sort of a lead indicator or a canary in the coal mine, if you will, of mortgage distress, it will probably come here first in the form of FHA mortgages just by the nature that they’re designed for lower income people who probably have lower credit scores. That said, I’m not personally concerned about this right now. It’s just something that I think that we need to keep an eye on.
The second subcategory that we should look at are VA loans. And that has gone up a little bit over the last couple of months. And similar to FHA loans is above pre pandemic levels, but in a historical context is relatively low. So again, both of those things are things I’m going to keep an eye on. If you’re really into this kind of thing, you can keep an eye on it too, but it’s not an acute issue. This is not an emergency right now. We are still seeing American homeowners by and large paying their mortgages on time. And so far I should mention, we’ve been talking about delinquencies. These are people not paying their mortgages on time. And obviously if that gets worse, it can go into the foreclosure process. So you might be wondering, are foreclosures up? Actually, they went in the opposite direction. According to data from Adam, which is a great reliable source for foreclosure data, foreclosures actually went down from 2024 to 2025.
And I know a lot of people out there are going to say foreclosures take a while, and maybe they’re just in the starting process and that is true. But the data that I am citing that they went down over the last year is foreclosures starts. So these are the number of properties where any type of foreclosure activity is happening. So even if they are still working their way through the courts and a property hasn’t actually been sold at auction or given back to the bank, those properties anywhere in the foreclosure process would show up in that data and it’s just not. It is still well below pre pandemic levels. And again, this is years after the foreclosure moratorium expired. So what does this all mean? Let’s all just take a deep breath and remember that the big picture has not changed that much and some reversion back to pre pandemic norms is to be expected.
So then why all the headlines? So again, if this is the reality and it is, then why are so many people talking about this? Well, there are two reasons. One is what I already mentioned, sort of those subcategories of residential mortgages, right? We’re seeing those delinquency rates on FHA and VA loans start to tick up. But I think the major thing that’s happened, at least over the last week that has really brought this into the news is what is going on with commercial mortgages? So first things first before we talk about residential and commercial mortgages, I want to just cover one of the fundamentals here is that the residential real estate market and the commercial real estate market are not necessarily related. They sound similar, but they often are at different parts of the cycle. We’ve been seeing that over the last couple of years where residential housing prices have stayed relatively steady while commercial prices have dropped very significantly in a way that I would personally call a crash.
And that is true of prices, but it’s also true in the debt market because we are talking about mortgages right now. And the main difference between residential mortgages and commercial mortgages, and there are many, but the main one, at least as it pertains to our conversation today, is that residential mortgages tend to be fixed rate debt. The most common mortgage that you get if you go out and buy a single family home or a duplex is a 30 year fixed rate mortgage, which means that your interest rate is locked in. It does not change for 30 years. And we see right now, even though rates have gone up for the last three years, more than 70% of homeowners have mortgage rates below 5%, which is historically extremely low. And that is one of the main reasons that we are seeing so many people still able to pay their mortgages on time as the data we’ve already about reflects.
But it is very different in the commercial market. More commonly when you get a loan for a multifamily building or an office building. And when I say multifamily, I mean anything five units or bigger, you are often getting adjustable rate debt, which means even though you get one interest rate at the start of your loan, that interest rate will change based on market conditions often three years out or five years out or seven years out. These are called the three one arm or a five one arm or a seven one arm. If you’ve heard of that, just as an example, if you had a five one arm, that means the first five years your interest rate is locked in. But every year after that, your interest rate is going to adjust every one year. And so in the commercial market, we are constantly seeing loans adjust to market conditions.
So a lot of operators and people who owned multifamily properties or retail or office, they’re going from a two or 3% mortgage rate to a six or a 7% mortgage rate, and that would lead to a lot more distress and a lot more delinquencies in the commercial market than in the residential market. And this brings me to this chart that honestly inspired me to make this episode because some very prominent influencers on social media, and these are not necessarily just real estate influencers, but people from across the whole personal finance investing economics space posted this one chart that showed that delinquencies have really been sort of skyrocketing over the last two or three years. And a lot of these influencers extrapolated this chart out and said, oh my god, there are millions and millions of people who are defaulting on their mortgages. This is going to be terrible for the housing market.
But the chart, and I’m putting it up on the screen if you’re watching here on YouTube, was actually for commercial mortgages, it’s for multifamily five plus units. And so you can’t take this chart that is for commercial multifamily and then extrapolate it out to homeowners. So if you have seen this chart and if you’re on social media, you probably have saying that there are 6.1 million homeowners delinquent on their mortgages. That is not accurate. It is actually closer to two or 2.2 million people depending on who you ask. But it’s about a third of what was being pedaled on social media over the last week or two. Now that doesn’t change the fact that delinquencies for multifamily properties are actually going up. And is that concerning? Is this something that you should be worried about? I guess yes, but sort of at the same time? No, because if you listen to this show, I mean how many times, honestly, how many times have we talked about the inevitable stress in commercial debt?
10 times, 50 times? I feel like we’ve talked about it maybe a hundred times. This has been one of the more predictable things in a very unpredictable, we all know that commercial debt is floating rate, it expires in three or five or seven years, so we’ve all known there’s going to be more stress in the commercial debt market. There’s going to be more delinquencies than in the residential mortgage market. And that’s just what’s happening, what people were predicting. And yeah, there is some scary data here. As I talked about earlier, what we really care about is the trend and what we see in multifamily delinquencies is that it is higher than it was in 2008 during the great financial crisis. And that does mean that there is going to be cascading effects through commercial real estate. There is definitely stress in commercial real estate. I guess the thing to me is that we know this, we’ve known this for a while.
We’ve seen office prices drop 20 to 50% depending on the market that you’re in. We’ve seen multifamily down 15 to 20% the market, the people who operate in this space of commercial real estate, no, this is happening. They have known this is happening and they’ve been reacting accordingly. And now I do personally believe there is more potential for it to go down even further. And we do have to see this all play out. But I want to stress here that just because this is in the news right now, it is not actually anything new. So again, the only reason this is making news at all right now is some people on social media posted a commercial real estate mortgage delinquency chart and then said it was residential homeowners. It’s not. They are different things and they behave very differently. Alright, we do need to take a quick break, but more on the state of mortgage delinquencies right after this.
Welcome back to On the Market. Today we are diving deep into what is actually going on with the American homeowner and whether or not they’re paying their mortgages. So what does this all mean given where we are with mortgage delinquencies both in the residential and commercial market? Well, first and foremost, I still believe that a 2008 style crash is very unlikely. I’ve been saying this for years, and although my forecast for this year, which I have shared publicly so that I do believe housing prices are going to be relatively flat, they might decline in certain places. This idea that there’s going to be a crash where there’s going to be 10 or 20% declines in home prices, I think that is still unlikely. Of course it can happen, but I don’t think that is very likely because that would require forced selling. Like I said, if that were going to happen, we would see it in the data.
We would see mortgage delinquencies start to rise. We would see serious delinquencies start to rise. We would see foreclosures start to rise. We would see forced selling. And as of right now, even though we have a very confusing economy with potential for recession, there are tariffs coming in right now. There isn’t evidence that that is happening. And even if there is for selling, and this might be a topic for a whole other day, but even if there is for selling, homeowners have tons of equity right now, so they could sell and avoid foreclosures and short sales, much of which contributed to the depth of decline back in 2008. So that part is also unlikely to happen. So that is the first takeaway here, is that I still believe a significant crash in home prices is unlikely. Now, number two, like I said, I just want to reiterate this.
When I say that there isn’t going to be a crash or that is unlikely, that doesn’t mean that prices can’t flatten or even modestly decline in some markets or even modestly decline on a national basis. But if prices go down 2% or 3%, that is what I would call a correction that is within the scope of a normal market cycle. That is not a crash to me, a crash means at least 10% declines. And so I just want to be very clear about the differences in what I am saying. The third thing that I want you all to remember is that a buyer’s market where buyers have more power than sellers is still likely to materialize right now, despite the fact that homeowners aren’t really in trouble. Now, over the last several years, five, 10 years, almost even, we’ve been in what is known as a seller’s market, which there are more buyers than sellers, and that drives up prices.
We are seeing in the data that inventory is starting to increase, and that is shifting more towards a buyer’s market where there is more balance in the housing market. But I think it’s really important to know that the reason inventory is going up is because more people are choosing to put their houses on the market for sale, and it is not coming from distressed sellers. Now, if you’re a real estate investor or if you were just looking to buy a home, that means that buying conditions could improve for you because you will face less competition and you’ll likely have better negotiating leverage. That’s the definition of a buyer’s market. But of course, you want to be careful in this kind of market because you don’t want to catch a falling knife. You don’t want to buy something that is declining in value and will continue to decline in value.
So my best advice is take advantage of this buyer’s market, find a seller who is willing to negotiate and try and buy a little bit below current value to insulate yourself from potential one, two, 3% declines. That could happen in the next year or two, but at the same time, prices could go up. That is also a very likely scenario of rates drop, which they could. And so that strategy would still allow you to protect yourself against unnecessary risk, but also give you the potential to enjoy the upside if prices actually do go up. So that’s what’s going on. Hopefully this is helpful for you guys because I know there is a ton of news and information and headlines out there that make it confusing, but I stand by this data and this analysis, and hopefully it helps you get a sense of what’s actually going on here in the housing market. If you all have any questions and you’re watching on YouTube, make sure to drop them in the comments below. Or if you have any questions, you can always hit me up on BiggerPockets or on Instagram where I’m at the data deli. Thank you all so much for listening to this episode of On the Market. We’ll see you next time.