As per the majority’s expectations, the real estate industry didn’t come out of the COVID-19 pandemic unscathed. The National Delinquency Survey by the Mortgage Bankers Association (MBA) reported a nearly 4% increase in the home loan delinquency rate for one-to-four-unit residential properties in December 2022. But how can mortgage delinquencies affect real estate, and how can you navigate the challenges as an investor? Keep reading.
How Mortgage Delinquencies Impact Real Estate Investment?
As mortgage borrowers increasingly fall behind on payments, lenders and servicers may suffer more losses and higher operational costs. Residential property owners often decry lower occupancy rates and rental income, while real estate investment trust (REIT) investors may accrue lower yields.
What Causes Mortgage Delinquencies to Increase?
Mortgage delinquency rates can increase due to factors such as:
- The higher unemployment rate, which the MBA predicts will increase to 5.2% by the end of 2023.
- Higher cost of living, which can affect borrowers’ ability to repay their home loans.
- Forbearance programs/ debt relief as many beneficiaries still fall behind on mortgage payments, post-pandemic.
Coping with Mortgage Delinquencies: Alternative Opportunities to Explore
If you own mortgage-related assets, you should explore different real estate investment options to navigate the impact of mortgage delinquencies smoothly. Viable market opportunities include:
- Online real estate platforms: Sites such as Zillow and Redfin list many properties and provide numerous financing options. The platforms feature the latest insights on the economy and trends in the housing market, which can help you make informed investment decisions.
- Affordable housing: The U.S. needs at least 7.2 million new homes to meet the demand for affordable housing. This area is worth exploring to cushion your real estate investment portfolio from the effects of mortgage delinquencies. Investing in affordable housing provides numerous perks, including government subsidies/tax incentives and a steady income stream.
Risk Mitigation Strategies for Mortgage-Related Real Estate Investors
Higher mortgage delinquency and default rates shouldn’t deter you from your core real estate investment strategy. But there are proven ways to reduce your risk exposure while you’re at it. These include:
- Diversify your portfolio: Spread your risks by investing in other real estate loans. Short-term loans, adjustable-rate mortgages, and prime/subprime loans are viable financing options worth exploring.
- Hedge your risks: Hedging limits potential losses during market volatility. For example, put options can be your safety net when bond prices drop. Also, credit default swaps can provide a degree of investment security in case of mortgage default.
- Be hands-on: When facing increasing mortgage delinquency rates, you don’t want to be too passive with your mortgage-related investment. Actively managing your asset accounts, analyzing performance, and immediately adjusting positions where necessary can avert irreversible losses.
Maximize Your Real Estate Investments with Trust Deeds from Fidelity Mortgage Lenders
If you’re a mortgage-related real estate investor, these strategies can help you increase your earnings and limit losses in the face of rising mortgage delinquencies. Trust deed investments with Fidelity Mortgage Lenders are some of the high-yield options available to investors like you in today’s volatile market conditions. Contact us now to learn more, you can also call us directly at (800) 752-9533.