The foreclosure rate in the United States has hit an all-time low, defying predictions of an impending housing crisis. Historical data from the New York Federal Reserve shows that typical foreclosure rates range between 1.7 and 2.4 percent, but current rates are well below these normal levels. This trend stands in stark contrast to the narrative pushed by market pessimists.

The relationship between bankruptcies and foreclosures provides crucial context for understanding the current market stability. Historical patterns show that waves of bankruptcies typically precede increases in foreclosures. The 2008 crisis demonstrated this pattern clearly, with bankruptcy filings rising sharply from 2003 to 2005, followed by a surge in foreclosures. The current market shows no such warning signs, with both bankruptcy and foreclosure rates remaining at historic lows.

Credit Card Concerns: A Different Kind of Risk

Credit card debt has surpassed the trillion-dollar mark, marking a significant milestone in consumer credit. The burden of this debt isn't evenly distributed across age groups, with consumers aged 18-35 carrying a disproportionate share. This concentration presents a unique challenge: while it may not immediately threaten the housing market, it could impact future homeownership patterns.

Credit availability has reached unprecedented levels, with the total available credit limit approaching $5 trillion - far exceeding previous peaks, including the 2008 high. Financial institutions appear to be extending higher credit limits primarily to established borrowers aged 38 and older, who demonstrate more conservative credit usage patterns. This dynamic creates a contrast between credit availability and actual debt levels, highlighting potential risks in the consumer credit sector.

Credit Cards vs. Mortgages

Delinquency patterns reveal a clear divergence between different types of consumer debt. While mortgage and home equity line delinquencies remain at historic lows, credit card delinquencies are approaching levels last seen in 2009. The 90-day delinquency rate for credit cards continues to climb, indicating sustained stress in this sector of consumer finance.

Auto loans maintain relatively stable delinquency rates at approximately 4.7%, while student loan delinquencies have remained low due to deferment programs. This disparity between credit card struggles and mortgage stability suggests that housing market fundamentals remain strong, even as consumers face challenges in other areas of their financial lives.

FICO Scores: an Optimistic Picture

Credit scores across America continue to trend positively, with FICO scores maintaining healthy levels and even showing improvement in recent quarters. This trend is particularly significant in the mortgage market, where borrowers consistently demonstrate strong creditworthiness. The stability in credit scores contradicts concerns about widespread financial distress among homeowners.

The combination of strong credit scores and high home equity positions creates a robust foundation for future market activity. When interest rates eventually moderate, this positive credit environment could support increased transaction volume in both purchase and refinance markets, though perhaps not at the intensity seen during the COVID-19 period.

Bottom Line

The current market presents a nuanced picture: while consumer credit, particularly credit card debt, shows signs of stress, the housing market maintains strong fundamentals. High credit scores, low foreclosure rates, and substantial home equity provide a buffer against housing market instability. The real challenge lies in the consumer credit sector, where mounting credit card delinquencies could affect future homebuying capacity, particularly among younger Americans. This divergence between housing stability and consumer credit stress suggests that any future market corrections are likely to manifest differently than previous housing-led downturns.