Recently declining home values have pushed the risk of delinquency higher, and the risk is likely to continue growing until at least 2010. The riskiest markets continue to be concentrated in California.
The risk of national delinquency is 12 percent higher now than it was a year ago, according to the Q3 2008 Core Mortgage Risk Index released today by First American CoreLogic today. The index has risen each of the past five quarters and currently stands around 1.60.
First American noted the index “is likely to continue rising nationally over the next 18 months.”
The index, an indication of the risk of future residential mortgage loan delinquencies, reflects mortgage fraud and collateral risk, home prices and economic data. More than 30 million loans in more than 7,500 zip codes were analyzed.
The latest report noted the decline in home prices is the primary factor behind the increase in risk. Increases in the index, which began rising in 2005, had previously been driven by increases in the fraud and collateral risk indices — which have been rapidly increasing since 2003.
Appreciation peaked out around the fourth quarter of 2005 the turned negative by the second quarter of 2007. By the second quarter of this year, values were falling by 11 percent annually. Of more than 380 Core-Based Statistical Areas tracked in the index, almost 200 are depreciating.
“The house price acceleration rate, a measure of the rate of change in the appreciation rate itself, is beginning to show signs of moderation,” the report stated. “This moderating trend over the last two quarters indicates that the house price rate of decline is slowing down, a first step toward the bottoming out of price declines, which must occur before any recovery can begin.”
However, in its Q3 2007 report, First American had said appreciation was stabilizing, while house price acceleration was moderating — indicating that downward house price trends at the national level were reaching their bottom.
The Foreclosure Index, which has risen each period since the fourth quarter 2005 when it stood around 1.40, currently stands around 4.45.
The Fraud and Collateral Risk Index has worsened each quarter since the second-quarter 2003 and now sits at just above 2.00.
The Affordability Index began declining around the third-quarter 2003, when it peaked out near 1.15, then hit bottom in the third-quarter 2006, at just below 0.90. It has since risen to around 1.80.
The riskiest market among the 100 largest metropolitan statistical areas was Riverside-San Bernardino-Ontario, Calif. The market had a Core Mortgage Risk Index of 4.02 and depreciation of 25.3 percent.
The No. 2 riskiest market was Los Angeles-Long Beach-Glendale, with an index of 3.64 and depreciation of 25.2 percent.
First American explained that in addition to big price declines, the Riverside and Los Angeles markets have seen unemployment increase by around 2 percent from a year earlier.
Next was Sacramento–Arden-Arcade–Roseville, Calif., which had a 2.46 index and 25.2 percent depreciation.
No. 4 was Miami-Miami Beach-Kendall, with a 2.42 index and 21.5 percent depreciation, and No. 5 was Oakland-Fremont-Hayward, Calif., which had an index of 2.33 and depreciation of 23.9 percent.
“California is currently the state with the largest price declines, and eight of the ten riskiest Core-Based Statistical Areas nationwide are from the state,” the report said.
The lowest risk was in Dayton, Ohio, which had a 1.05 index and 6.1 percent depreciation.
“Of the markets experiencing price appreciation, the majority are located in Texas, Pennsylvania, Indiana, Alabama, and Iowa,” the report said.
