The wildfires in Southern California are likely to have some impact on loan performance – but the full brunt will not be known until later this month when February payments come due, according to a report from ICE Mortgage Technology.
In the firm’s latest Mortgage Monitor report, Andy Walden, head of mortgage and housing market research for ICE, says “nearly 5 percent fewer homeowners inside California’s Palisades and Eaton fire zones had made their January mortgage payment by mid-[January], when compared with the same time in December.”
“Natural disasters continue to be in the spotlight across the country, and our hearts go out to the tens of thousands of affected households,” Walden says. “Early data shows financial pressures building among homeowners impacted by the ongoing California wildfires, while at the same time, more than 56,000 homeowners are still struggling to get back on track with monthly payments across seven states in the wake of last year’s major hurricanes.”
With regard to the wildfires, Walden notes that “those fires broke out after many homeowners had already made their January payments, so we likely won’t see the true stresses those homeowners are facing until February payments become due.”
“We’re also beginning to see potential downstream impacts among a number of the more than 140 municipal entities that were at least partially exposed to the ongoing wildfires, with spread-widening being seen in City of Los Angeles water and power municipal bonds which are typically paid through local water and power revenues,” Walden says. “This represents perhaps the first time the bond market has experienced a nearly immediate repricing of municipal debt due to a natural disaster.”
Prior to these disasters, mortgage delinquencies were already on the rise, inching up slightly during the second half of 2024, especially among FHA and VA loans, suggesting performance will become a growing focal point in 2025, ICE says.
On the bright side, the total number of foreclosures started and completed (sales) in 2024 hit record lows – outside of the COVID-19 moratoria – due to the prevalence of forbearance and other loss mitigation efforts, along with the strong equity footing of mortgage holders in today’s market.
Looking at the broader market, the report shows that annual home price growth edged slightly higher in December to finish the year at 3.4%, the softest growth since 2011, when the market was recovering following the financial crisis.
The number of homes for sale in 2024 increased 22% leaving for-sale inventory at its best level since mid-2020, with a quarter of markets – primarily in southern states – back above pre-pandemic levels.
“At the current rate of improvement, another 15% of markets, primarily in the South and West would be on pace to see inventory levels normalize this year,” Walden says. “At the same time, Midwest and Northeast markets continue to face steep deficits and a slower path to recovery. Given the disparity of inventories across the country it is no surprise to see 18 of the 20 strongest housing markets from a price growth perspective located in inventory-starved portions of the Midwest and Northeast.”
Photo: Ross Stone