Fewer residential mortgages fell into default in June, however warning indicators stay

Real estate mortgages showed notable performance improvement in June, but that doesn't necessarily mean the worst for the sector is over.

According to the Mortgage Bankers Association's CREF Loan Performance Survey, the rate of late loan borrowing in June is 17.6%, almost 10 percentage points better than in the same month in 2020. Compared to May, the performance of these loans is 2, 4 percentage points better.

Even if the Americans are traveling again as the pandemic subsides, there is still no all-clear for the accommodation sector.

According to the American Hotel & Lodging Association, revenue per available room for urban real estate decreased 52% in May compared to the same month in 2019. REVPAR decreased 33% for hotels near airports and 21% decreased for suburbs.

Of the 25 largest hotel markets in the country, 21 are classified as depressed, and that is unlikely to change anytime soon.

The recent surge in leisure travel is encouraging for hotels, but business and group travel, the industry's largest source of income, is unlikely to return to 2019 levels until at least 2023 or 2024, according to an AHLA press release.

The default rate for all commercial and multi-family loans remained unchanged from 4.8% in May and decreased from 6.3% in June 2020.

"Commercial and multi-family mortgage defaults continue to be driven by loans backed by hotel and retail properties that ran into trouble during the pandemic and are now more than 90 days late," said Jamie Woodwell, vice president of commercial real estate research for the MBA. "We expect these late-stage defaults to subside as the economy opens up further and uncertainty about the prospects for this and many other types of property is less."

The proportion of badly defaulted loans – those 90 days or more late, or those in possession of real estate – was 3% in June, up from 3.1% in the previous month.

In the meantime, interest on arrears for all other types of property increased month by month. The retail failure rate rose from 9.5% in May to 10% for the second straight month.

Commercial property defaults rose to 3.1% from 1.9% in May, while late-payment office property owners rose from 2.4% to 3.5%. The default rate for multi-family loans was 2.1% in June, 30 basis points higher than in May.

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