Could an increase in late and defaulting consumer credit and business loans lead to more distressed real estate opportunities for buyers?
Mortgage loan defaults and foreclosures ended up being far lower than expected in the wake of COVID. Rather than a deep crash, house prices and sales rocketed. A lot of stimulus, forbearance plans, foreclosure moratoriums, and a strong housing market has certainly helped this.
Rising Credit Defaults
New bank data published by DistressedPro shows that while mortgage distress has been slowly improving, other types of credit are seeing more late payments and defaults
Among these are spikes in business loan, auto loan and credit card defaults. There are tens of billions of dollars in these distressed debt pools.
All of these classes of debt were showing increases in distress at the end of 2021.
How People Pay Their Bills
Typically, when consumers get into financial difficulties they first stop paying their credit cards. Then if they still can’t keep up they stop paying their car loans. Finally, if businesses and individuals still can’t keep up they start falling late or give up on making their house and real estate payments.
We also saw an extra 29,000 unemployment claims than expected in the second week of February 2022. Suggesting the job market may not be as strong as some thought.
While some areas of the economy appear to be doing very well, some experts wonder if we are actually heading into stagflation. A period of the economy in which inflation is high, but the overall economy is stagnant, and not really growing. Those conditions make it harder for businesses and workers. Their costs go up, but their sales and incomes may not.
More Opportunity For Real Estate Investors
The above all comes together to suggest that there may be more opportunity for real estate investors ahead.
With a continued rise in home prices we may not see a big rise in REOs. Banks are likely to be able to sell off these non-performing liabilities as mortgage notes before they get to that stage.
Commercial and residential property owners may also be able to sell their properties in the retail market before they lose them. They may not get premium prices, but the recent surge in equity could leave plenty of value on the table for everyone involved.
Keep your eyes out for more motivated sellers out there.
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