50% of Recent Homebuyers Can’t Afford Their Mortgage

Dave:
Half of all Americans who bought a home in the last two years say they cannot afford their mortgage long term unless they refinance to a lower rate. Yeah, that’s a pretty scary stat that could cause some trouble. There are so many people out there who are told to date the rate and marry the house. Rates would come down, they’d refi. It’ll be no problem. But instead, mortgage rates are well into the mid sevens for the first time since 2025 and there is no immediate relief in sight. And this isn’t just sentiment. The foreclosure pipeline is quietly shifting towards exactly these buyers. Loans made in 2022 or later now make up almost half of completed foreclosures. So today on On the Market, we’re breaking it down. We’re looking at a new survey on how stretched recent buyers really are, what the big picture data says about distress, and where this creates motivated sellers and opportunities for investors.
This is On the Market. Let’s get to it.
Hey everyone. Welcome to On the Market. I’m Dave Meyer, real estate investor, chief investment officer at BiggerPockets and a housing market analyst. Today on the show, we’re going to talk about two different data sets that I came across in the last week that are telling a pretty similar story, but from slightly different angles. The first is a survey from a company called TrueWork on how recent home buyers are handling or maybe not handling their mortgage payments right now. And the second is from ICE’s Mortgage Monitor. This is data that I’ve been using for years. It’s very reliable delinquency and foreclosure data. And they’re telling a story that I think we all need to be paying attention to as investors and observers of the housing market because it does look like there is some distress coming in the market. And distress is something we should always be paying attention to because that is the thing that can take us from the housing market correction that we’re in and have been in for a while into a scarier situation where there’s a potential for a crash.
So we need to look at this stuff and that it’s exactly what we’re going to do on the show today. So let’s just start by diving into the survey that has this scary looking headline. Again, it’s from a company called TrueWork, their 2026 home buyer report. And what it says, the big headline number is that 50% of survey respondents say that their mortgage payment won’t be sustainable unless they can refinance at a lower rate. That is wild. 50% of people who have bought in the last two years say they need to refi at a lower rate in order to make their payments sustainable. That is a really scary number. Now we’ll talk about how big this cohort is, but you don’t see a lot of numbers like that in the housing market recently. If you look, we’ll get to this later, but if you look at the delinquency rate, how many people are actually delinquent on their mortgages, it usually sits between three and 4%.
So seeing a number like 50% catches your attention. Now, it’s important to remember that this is sentiment. It’s self-reported and we’ll talk about that in a little bit. This is not actual delinquency data, but even that is a little bit scary. Let me just share a couple other highlights and stats from this survey because it’s pretty eye-opening. 85% of recent buyers with a mortgage say refinancing within the next three years is important to their financial health. So not saying it’s unsustainable, but 85% are saying they need a change for their finances to stay in good order. And then these two other stats really get me going, and I’m going to go on a rant in just a second here, but these two stats really frustrate me. Six in 10 buyers of these people who responded to this expected rates to fall and 73% planned from day one to refinance once rates dropped.
Think about that. Nearly three quarters of these people bought with a refi as part of a plan, not as a bonus as it should be treated. That is a dependency that they created on something that is completely out of their control. Now, of course, a lot of this so far is just speculation. It’s not saying that people are delinquent now. They’re just saying things are getting tight and that’s actually showing up in the data and the budgets too. So in the same survey, a third of people have said they already are cutting spending on basic necessities because of their mortgage payments. That’s not great. Now that’s what you would expect people to do because people usually cut other things other than their home and mortgage payment. They don’t want to go delinquent on their mortgage, but a third, that’s a lot. 20% of people said they’ve cut retirement contributions.
Not surprising, that’s kind of the first thing that goes when people are stretched, they stop saving. 13% have said they’ve considered delaying having kids just because of these reasons. And 88%, last stat I’ll give you, I’m giving you a lot, but 88% say at least one setback to their finances could jeopardize their ability to pay. Just remember, this is sentiment. It’s not actual delinquencies. It’s not actual defaults. And this concept of unsustainable, what does that mean? They don’t really tell you. So it really is self-reported and I would personally discount these numbers a lot. 50% is way too high. That’s not going to happen. We’re not going to see a 50% delinquency rate. But even if it was 25%, that would be insane. Even if it was 15%, that would be a lot, right? I told you the normal delinquency rate’s like three or 4% for the whole market, but even in the small cohort, if that went up to 15%, that would be a lot.
And although we should discount it, we should also remember that this survey came out in July before rates really started going up. We were in the sixes at that point. Now we’re at seven and a half as of this recording. So if you took this survey again, I think people would be even more pessimistic about this and the prospects of a refinance. So there is real distress here, and this is something we’ve been following for years and on the market. I’ve been saying for a long time that we have the ingredients for a correction, we have elevated supply, we have less demand, we have low affordability, but the key thing that we don’t have that takes it from a correction to a crash is distress. But this is distress. And so we need to talk about how big this is and if this is going to spill into the other market or if this is just going to be isolated and we need to talk about what you as investors should do about it.
But I need to go on a rant for just a second please, because this data, this survey to me is the exact evidence of the advice quote, date the rate, marry the house totally, totally backfiring. And it is the most predictable backfire in the world in my opinion. I have been saying this for years. We did a show back in 2023 on On the Market called The Worst Real Estate Advice. And my answer, we had the whole panel there, my answer was date the rate, marry the house is the worst advice because it is garbage advice. You are basically telling people to make a huge bet on something they have absolutely no control over. And sure, maybe it sold some houses in a tough market, but it did that by putting people in a bad position. Just look at what’s happening with the data. So let me just say this for the thousandth time to be clear.
Counting on a refinance is a terrible idea. Look at the folks in the survey who were counting on a refi and look where it got them. And I’m going to share some numbers about being underwater that shows that this is not very good situation for these people. Second, look at the syndicators who counted on a refi in three years. They’re all losing their investors’ money. It is not a good idea to count on a refinance. Sure, if you’re in commercial real estate, you need to build that into your performa a little bit, but man, if you’re underwriting a deal, underwrite at today’s rates, if you get a refi, that is a bonus. Do not make that a dependency in your deals. It’s such a bad idea. I don’t know why anyone would do it. Hopefully this puts the date the rate married a house garbage to bed forever.
So that’s my rant. Thank you for indulging me. Let’s get back to distress in the market and talking about if this is just an isolated pocket or a symptom of something bigger. We’ll get to that right after this quick break. Stick with us.
Welcome back to On the Market. I’m Dave Meyer. Today we’re talking about recent data that shows distress evolving in people who bought homes in the last couple of years. We’ve talked about the survey data, that is sentiment data, right? That is not super hard data, but it is concerning. So let’s turn to what the hard data actually says. If we can do this, we can measure delinquencies, we can measure foreclosures, that data exists. So let’s go there. There’s a company called ICE. It’s not the federal agency. There’s a company that puts out something called the mortgage monitor, really loan level, good data. Let’s look at what they say about distress. Big picture, when we look at delinquencies, inability to pay mortgages, foreclosures, still pretty calm on a national basis. So keep that in mind, still pretty calm. If you look at the national delinquency rate for all mortgages across the entire country, it is at 3.53%.
And I just want to call out that that is below the pre-pandemic level in August of 2019, which was 3.88%. And I’m comparing it to 2019 because that was the last year before the pandemic and there was all those rules and all this data got a little bit messed up. But if you compare it back to then, we are still below that. So I think it’s really important to remember, but we should also acknowledge that it has been creeping up, but it’s creeping up pretty slowly and not in any way that I feel like there is any sort of huge national crisis evolving, at least as of right now. Just for some historical context, like in the late 2010s, we averaged around four, so we’re not even there yet. We’re still below where we were for most of the 2010s. And if you were curious about where things were in 2007, 2008, we were at nine to 11% delinquency rates for most of those years.
So we are still at a fraction of that. And it’s not like the graph is going up into the right, it’s like trickling upwards and it’s something that we’re going to watch, but I just want everyone to remember that despite some of the sentiment and certain pockets of the mortgage market showing distress, the big picture is relatively calm. Now, I do want to call out, because you’re probably going to see a lot of headlines this year, next year about foreclosures and going up and how this is going to be a disaster. Let’s just head that off now and just acknowledge the actual situation going up. Yes, serious delinquencies in the market. They’re actually up a lot, 21% year over year, but the growth rate is starting to slow down. So basically, this is getting nerdy, but it was growing the fastest back in February. It’s starting to slow down, and we’re actually seeing some good news here.
So I’ve said on a show recently that FHA loans were a pocket of the market where there was some distress, but the cure rate, which is basically going from delinquencies back into paying as agreed, that has actually gone up on FHAs and serious delinquencies have slowed down there. The VA part of the market is still pretty weak. So I’ve called that out in the past and I’m going to continue to do that, but we have seen the default rate for VA loans go up. Keep in mind that is a very small portion of the market, but it is something to keep an eye on. So that’s delinquencies. In terms of foreclosures, yeah, it depends where you look at the funnel. Just remember that this whole thing of distress in the housing market is a funnel. It starts at delinquencies, then it goes to serious delinquencies, then it’s pre-foreclosure, then it’s active foreclosure, then it’s a foreclosure sale.
So it’s this whole thing and it gets fewer and fewer for people as it goes on. If you look at different parts, you’ll see different things. But what I just want to call out, my interpretation of this data, and it’s pretty clear, is that after the pandemic, we saw a big uptick in foreclosure activity throughout the funnel because all of these government programs ended. So we saw a big uptick. And that’s why you see these numbers, like foreclosures were up 30% last year, 40% last year. Of course they were because they were artificially low for a while. But now the growth rate on those is starting to slow down, meaning that it’s not like taking off and continuing to go up. It’s going up a little bit, but it’s still reverting back to the mean. It’s still getting back to normal levels, at least as of now.
So foreclosure starts, actually the number of properties that are going into foreclosure for the first time, that’s actually starting to go down. Yes, you’ll see foreclosure sales up because those have taken years after COVID to work their way through the foreclosure funnel, and now they’re reaching the part where they get sold and that part’s up. But if you look at the beginning of the funnel, that part’s actually down. And so big picture, we’re getting close to 2019 levels. It’s pretty normal. It’s not a crisis, but there are pockets where there is absolutely distress. And we’re going to talk about that in just a second. We’re going to get back to these recent buyers, but I just also want to call out one other thing about distress is that right now we’re still not even at 2019 levels, but the other thing that sort of insulates the market is just how much equity there is in homes right now.
Mortgage holder equity is above $18 trillion right now. And just in terms of tappable equity, like if you went out to get a HELOC or if you want to do a refi, that is $12 trillion. So most people can tap more equity out of their home if they need to, they can sell without being foreclosed on. And so even though distress is rising, there is still a lot of positive parts of home ownership in the United States right now, and the overall big picture is relatively calm. And so the way I would describe what’s going on right now is really as a vintage story. And vintage, you probably hear this with wine and stuff, but we use this word to describe mortgages too. It’s basically the year a mortgage was originated. And it’s the same thing is that we have a problem with specific vintages of mortgages, just like I guess I know nothing about wine.
I like it, but I don’t know anything about it. But I would imagine you have bad years with wine, we have bad years in mortgages too, and 24 and 25 were pretty bad years from mortgages if you look at the data. Just looking at 2022, everything from 2022 or later, 43% of foreclosure starts and 49% of completed foreclosures are from that year. So just think about that. It’s like half of all foreclosures are from mortgages anytime before 2022. So those could be up to 30 years old essentially, but nearly half of them just come from the last three or four years. What that means is that the distress is from new buyers. It backs up. This is kind of why I made this episode, it backs up the survey. The survey said people are feeling stressed. The data, the hard data at loan level is showing that’s real, that there is distress here.
These new loans, a lot of them could start to go bad in my opinion, and I don’t think we’ve even really started to see that yet. I think that will start to come in the data based on some of the sentiment and just based on what we’re seeing with the rest of the economy, with consumer spending and consumer buying, I think we’re going to see more distress personally. And I think this is a situation that could get a little ugly for these people because even though what I just said, that homeowners generally speaking have a lot of equity in their home, these people don’t. The people who borrowed from the last three or four years, a lot of them are from these recent vintages, which makes sense, right? If you bought in any year up to 2020 or 2021, you have equity in your home, almost anywhere in the country.
Unless you’ve made a terrible deal, you way overpaid for something, the market forgave you and you have a lot of equity in your home. So it really is people who bought in the last couple of years. It’s concentrated mostly in FHA and VA borrowers. And honestly, it’s a lot in the Southeast, Florida and Texas lead the way. You can check this out. We can put a link to the ICE Mortgage Monitor if you want to check it out. I have tons of great information for the nerds out there who want to really dig into this like I do, but you can see exactly where a lot of the distress is. And listen, I do not hope for this. I think you hear how frustrated I am that people were making these decisions without fully considering what a refi might do to them, but it’s probably where there’s going to be good opportunity too.
So I just want to say that if you’re looking for places with motivated sellers, you’re probably going to see it in these markets, FHA, VA loans, 2022 and beyond Florida, Texas, places in Tennessee, stuff like that. So that’s where we sit with distress overall. The data does match up with the sentiment survey. And my feeling is that there’s going to be distress here maybe for years to come because I don’t expect interest rates to come down meaningfully in the next few years. Maybe they can get into the 60s next year. It really depends on the war in Iran and inflation, but they’re not getting in the fives next year, that’s for sure. So I think a lot of people are counting on a meaningful refi. That’s not going to happen. And so the question is, what does this mean for the housing market in general and prices?
And what does it mean for you as an investor? We’ll talk about that right after this quick break. Stick with us.
Welcome back to On the Market. I’m Dave Meyer. Today we’re talking about distress with a specific vintage of homeowners, people who bought after 2022 are facing challenges. We see sentiment surveys say that 50% of them are relying on a refi to preserve their financial position. 88% of them said that a normal ordinary financial setback would jeopardize their ability to pay. And we’re starting to see upticks in the actual data with foreclosures and delinquencies among these people as well. And so to me, what this means, big picture for the housing market, is that we are probably going to have a growing pool of motivated sellers because so much of what we’ve talked about in recent years about why the market hasn’t crashed is because the lock and effect is real and a lot of people are not forced to sell and therefore they just choose to sit this market out and that has moderated inventory and supply growth.
This, we could have forced selling here. I have said this for years, but forced selling is the ingredient that can get things scary. And this isn’t a small group actually. About 28% of outstanding mortgages, according to realtor.com, 28% of outstanding mortgages were originated since mid 2022. So if you take the survey at its word and say 50% of those people, that’s 13% of outstanding mortgages. That’s a lot. I don’t think that 50% is real, but we are going to see some distress here. And so I do think this is one of the reasons I’ve been saying I think we’re going to see national home prices nominally turn negative next year. I know a lot of people are not saying that. I am going out on a limb. I said it for this year and actually, literally as of today, Redfin came out with data that said their housing index turned negative this year for national home prices nominally.
This has just been a long time coming. I think we will see that by the end of 2026 it will be negative and I think in 2027 it will be negative as well. And this is important to know because as investors, one, this could put downward pressure on pricing generally speaking. When there is an increase in supply, whether it’s from forced selling or new listings or whatever, but particularly when it’s from forced selling, that usually is coming at a time when there’s not a lot of demand and demand is soft. We see this in the pending home sales data. We see it in existing home sales data. We see it in the mortgage purchase applications. We know demand is soft. It’s gone down significantly in the last two to three months. Now we’re seeing a little bit of distress here. And again, it’s a little bit.
It’s not a lot, but even if this ticks up a little bit, depending on your market, it could put a little bit of pressure on it. This is happening a lot across the west and the southeast and Texas and Florida and California. It’s happening in a lot of these markets and the Midwest, Northeast tend to be a little bit more insulated from it, but I think it will just put a little bit more downward pressure. Again, I am not saying there’s going to be a crash. I still think that we are a ways away from that. Has the risk of a crash gone up? Yes, I think so. I’m asking myself my question that right now. Last year going into 2026, I make these kinds of predictions and I always base them on probabilities. I said there’s a 10% chance of a crash in 2026.
2027, man, I’ll make my official predictions in December, but I’d say it’s probably 15 to 20% now. So I still don’t think it’s even close to the most likely scenario, but depending on what happens with the labor market and stuff, we could see certain markets crash, maybe not nationally, but I am still not thinking that’s the most likely scenario. Instead, my take and what I intend to do with my own investing is treat this as a buyer’s market. There’s going to be more stressed and more motivated sellers, and I think it’s going to be a trickle, not a flood, right? Most people aren’t going to just say, “Oh, I’m in a little bit of trouble. I’m going to sell my house.” As people said, even in the survey, it shows most of them said, I didn’t even cite this stat before, 40% said that they would take on a second job if they had to.
So again, we don’t know exactly how this will play out, but I would say trickle, not a flood, but we’re going to see motivation show up in price cuts, in concessions, in stale listings. And yeah, I think in short sales and pre-foreclosures, I think more of these will probably go to foreclosure. It’s not a fire sale. It’s not going to be like 2011 where there’s foreclosures everywhere, but first time in a long time, foreclosures might actually make a little bit of sense here. So that’s something to consider. So as an investor, what should you do with this information if we’re going to have increasing distress? First of all, don’t freak out. We talked on the show. I try and share this data with you because there’s a lot of bad takes out there. And again, I always say this, I will be wrong in the future, but I’ve been predicting mortgage rates and inventory rates on the show publicly for five years now, and I’ve been pretty darn close most of the time.
And I try and tell you when I feel confident in a prediction and when I don’t. And right now, I still feel like the highest probability outcome for the next few years is the great stall. I really do believe that. I would tell you if I though differently. Certain markets are going to see serious declines. If you look at Denver, if you look at Seattle, we’ve already seen serious declines in a lot of Texas and a lot of Florida. I think it’s going to spread a little bit. We’re going to see it in Tennessee. We’re going to see it in parts of the Southeast. That is going to happen, but don’t freak out. I’ll update you every single month. You can count on me. I will tell you when the distress is coming. If it gets really bad, if that probability of a crash goes from 20 to 30 to 40 to 50%, I will tell you.
But right now, we just really don’t know. And even in the last few days, mortgage rates have started to come down. So we just don’t know, but right now there is no evidence that that’s imminent. So that’s number one. Number two, please don’t make the same mistake as a lot of these folks. Do not buy the date, the rate, marry the house. Do not buy anything on the assumption that you are going to get a refi that is going to bail you out. If you get one and it makes a good deal great, good for you. That’s awesome. That’s how you should treat it. But if you are looking at a deal and it only works if you get a refi, do not buy that deal. Just don’t. I really don’t even have caveats for that. Just don’t do it. Third piece of advice, if you’re looking to buy, figure out motivation.
Talk to your agent. If you’re looking at properties that have been sitting on the market, see if you can hone down into these vintages of 2022 and 2025. And I always encourage people to treat real estate as a win-win situation. Unfortunately, some of these homeowners have gotten themselves into a bad situation. I’m not saying to go out there and take advantage of people, but if they’re in a bad situation, they’re going to be looking for buyers. They need a buyer to get out of their bad situation. And if you are a buyer, you’re going to have the ability to dictate some terms and price. And that is fair in my opinion. You’re going to help them out of a bad situation, you will get better terms and price for being one of the few buyers in this tough market that we’re in right now for sellers.
So if you’re buying, look for this kind of stuff. And I should mention that don’t just negotiate on price. A lot of people want to get that price, especially if it’s in a short sale or something like that. So also think about negotiating on terms. We’ve talked about that a lot recently, but getting concessions in terms of point buydowns or closing cost covers or stuff like that, absolutely a good way to do it. The last thing I want to say is if you are one of these buyers, I’ve bought homes in the last couple of years. Fortunately, I don’t think any of them are underwater. I’m making my payments, but a lot of investors have bought over the last couple of years, hopefully done it right. But if you are one of these homeowners, first of all, I’m sorry, this stinks. It’s not good for anyone, but try and get ahead of it.
Call your servicer as soon as possible because these companies do have options better for you, and the options are better if you get ahead of it than if you’re seriously delinquent. So figure out how you can come up with a repayment plan or figure out something that’s better or look at new ways to generate income from your properties. Go rent by the room, do a house hack, build an ADU, figure out if you can make it profitable. And if that doesn’t work, I would just encourage you all to be realistic. I don’t think the market’s getting better in the next year or two for sellers. It just doesn’t seem like the most likely scenario. So I wouldn’t continue non-payment and getting further behind on a mortgage thinking that you’ll get bailed out even in the spring. I wouldn’t do that personally. You know your market better than I do, but generally speaking, I would cut losses if you’re already behind.
If you’re cash flowing, don’t. I had a deal I put on the market, it didn’t sell, I just took it down because it cash flows. I’m just going to wait. It’s fine. But if you’re falling behind, my advice is to have a realistic look at the market and don’t double down on something that’s not working. So that’s our show for today. There is going to be some distress specifically with those vintages. I don’t think we’re really even seeing it in the data yet, but I expect it to come in the next couple of months. It’s just the way the data is trending where the sentiment survey is trending, and this is going to put some downward pressure on pricing throughout the market. Again, my forecast is still low single digit nominal home price declines in 2027, two, three, 4% down, maybe 5% on the higher end for where things could go.
And that’s national. Certain markets are going to be fine. They’re going to grow. Certain markets are going to be much worse than that. But when there is more distress like this, it puts downward pressure. Regardless, even if your market grew 5% last year, it’s going to put downward pressure, maybe it grows 3% next year. So that’s something you need to remember. Also remember, don’t freak out. The probability of a crash, it’s always there, but it’s still not the most likely scenario. And if we look at distress and overall delinquency levels, they’re not even at 2019 levels. So keep that in mind, have a sober view of what’s going on as you hear all these negative headlines, because you’re going to hear a lot of them. I am sure of that. Keep in mind what’s actually going on here and make good decisions about your portfolio that are based on the numbers and the facts and not what everyone else is screaming.
That’s our show for today. Thank you so much for listening to this episode of On the Market. I’m Dave Meyer. I’ll see you next time.