Mortgage delinquencies are rising as homeownership costs pile up

A new Cotality report reveals that rising property taxes and insurance costs are significantly increasing mortgage delinquencies, reversing a three-year decline since mid-2024. Post-purchase homeownership costs, with average escrow payments rising 62% over five years in some regions, are making homeownership unsustainable for many, particularly in states like Florida, South Carolina, and Georgia, which are experiencing escalating insurance premiums and property tax hikes. This trend is notably more pronounced in government-backed loans, with FHA and VA serious delinquency rates 5x and 3.5x higher, respectively, than conventional mortgages, signaling increased credit risk within specific segments of the housing market.

Analysis

A significant reversal in U.S. housing market stability is underway, with rising mortgage delinquencies driven by escalating post-purchase costs, according to a recent Cotality report. After a three-year decline, the serious delinquency rate began to climb in mid-2024, signaling new credit stress. This trend is not uniform, but concentrated in states like Florida, South Carolina, and Georgia, where a confluence of factors including natural disasters and subsequent insurance market turmoil have amplified financial pressure on homeowners. For instance, in Florida, average escrow payments, which cover taxes and insurance, have surged 62% in five years, while national property tax bills have risen 15.4% since before the pandemic. The risk is disproportionately affecting government-backed loans; serious delinquency rates for FHA and VA loans are five times and 3.5 times higher, respectively, than for conventional mortgages. This stratification of risk, coupled with the national property tax delinquency rate hitting its highest point since 2018 in Q1 2025, suggests that underlying affordability is deteriorating beyond what headline home prices and interest rates indicate.

Key Decisions for Investors

• Investors should exercise caution with mortgage-backed securities (MBS) that have high concentrations of FHA and VA loans, particularly those with geographic exposure to the southeastern U.S.
• Consider reducing exposure to regional banks and property insurers in Florida, Georgia, and South Carolina, as these entities face direct headwinds from rising credit defaults and climate-related cost pressures.
• Monitor regional unemployment figures and insurer solvency as leading indicators for further deterioration in housing credit, as the report links delinquency rates to both economic and insurance market health.
• Re-evaluate models that assess housing affordability based primarily on purchase price, as rising carrying costs like taxes and insurance are becoming a dominant and overlooked risk factor to homeowners' financial stability.