You may have missed a terrific chart Bill showed over the weekend at Calculated Risk: States: U-6 Unemployment Rate vs. Mortgage Delinquency Rate. Its a state by state look at the correlation between mortgage delinquency and U6 Under/Unemployment.

I would describe the correlation between the two as significant but not overwhelming. However, we must also recognize that there is a real world lag between the loss of income caused by a firing or a decrease in available hours, and any subsequent mortgage delinquencies. Perhaps a 4 or 6 quarter shift in the U6 data would show a tighter correlation.

The chart (below) goes a long way in challenging those who live on anecdotal tales of gainfully employed profligate spenders who are living the high life by not paying their mortgages. To the contrary, the data shows that the income loss associated with unemployment (and underemployment) is a significant factor in mortgage delinquency.

Additionally, note the two outliers in terms of delinquency: Florida and Nevada, with the former a recourse (but homestead) state and the latter a non recourse state.


Unemployment Correlation with Mortgage Delinquency

click for ginormous chart

chart courtesy of CalculatedRisk

If anyone wants to produce evidence of the contrary, I am willing to post an alternative explanation.

Anyone who sends me anecdotal tales, be forewarned I have a voodoo doctor who enjoys jabbing hot needles into the crotch region of the innumerate . . .

States: U-6 Unemployment Rate vs. Mortgage Delinquency Rate
CalculatedRisk , May 23, 2010

Category: Consumer Spending, Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

29 Responses to “Unemployment Rate Correlation with Mortgage Delinquency”

  1. maxrockbin says:

    It seems clear from the chart that areas with a bigger bubble diverge above the trend line. That makes sense, since those are people more likely to have overpaid, and maybe more likely to have speculated prices would continue going up dramatically. CalculatedRisk puts Florida’s outlier status to it’s severe foreclosure laws. Delinquencies aren’t foreclosures though. Ditto when they say negative equity significantly increases delinquencies. It would increase defaults, but has a fuzzier impact on delinquency.

    Also, it isn’t clear if this trend line is weighted by population or not. California ought to have more weight than North Dakota, no?

  2. jeg3 says:

    What percentage of each state’s citizens don’t know the difference between Uncertainty and Risk?

    Maybe they should start over in Canada or Australia!

  3. patient renter says:

    This correlation is even more compelling when you consider that some of the outliers such as Oregon had housing bubbles that lagged the rest of the country. Foreclosures there will catch up.

  4. Kort says:

    This chart is no surprise, you would expect mortgage deliquencies to rise with unemployment. You would expect a lot of “bad things” when unemployment rises.

    Separately, not charted, is that consumer spending has risen for 7+ months.

    Questions- where is this money coming from in consumer spending? (this chart that money isn’t going into mortgage payments!) How does consumer spending in this recession/delinquency/unemployment, jibe with the turnaround in prior recessions? Are lenders reporting Jingle Mail statistics or hiding them?

  5. Hit the Reset button says:

    So BR if I read this correctly, 4-6 quarters after losing a job or obtaining a job with a lower income level the delinquency rate rises?

    That makes sense if you figure that many will try to make it by maxing out their credit cards and home equity lines (although typically HE lines were cancelled early on in this saga when values dropped).

    I think the problem in FL was all of the spec and 2nd, 3rd and 4th home purchases (Cape Coral FL) that took place in the name of investing (greed). It created an entire cottage industry just by creating more new construction jobs for homes that were either never lived in or only occupied for a couple of weeks a year.

    I don’t think that chart tells me if individuals are living “the high life” after walking away from their additional home (2nd home) or not (my personal belief is that those individuals do have more money to spend and are spending it).

    For those who are homesteaded that had cut back to make their mtg pmt, who no longer are making that mtg pmt but still living in the home, would they now have more money to spend on other things?

    Perhaps. Live the high life? I doubt it. The local media (Ft. Myers & Naples) are reporting that some are living in their homes for up to 2 years without making a single mtg payment during that time.

    We need more data………… maybe compare current visa/mastercard receipts of those who walked away with their prior spending history?

  6. mtlippincott says:


    I saw in a presentation a table based on Amherst Securities data. The title of the slide was “Being Underwater Is a Much Bigger Driver of Defaults Than Unemployment” for Prime Loans. I can’t figure a way to post the table directly since it’s in a PDF doc, but here’s a recreation:

    Prime Loans – Monthly Transition Rates (%)

    Unemployment Rate CLTV CLTV CLTV CLTV
    3 Months Ago 120%
    12% 0.18 0.51 0.97 2.05

    The table uses transition rates as the punchline and I don’t have as good a grasp of the implication but maybe you do. At any rate, from my ignorant eyes it appears that if you look at say, a house with a CLTV of 101-120% (just underwater), as the unemployment rate from 3 month ago goes from below 8% to the highest rate of above 12%, the transition rate increases by about 50% (I guess that means about 50% more people are moving up the stages of delinquency). However, if you look at the lowest unemployment rate 3 months prior (the 8%) category, as you go up the CLTV chain from lowest to highest, the monthly transition rate increases almost 400%.

    So that seems to be some evidence that the equity factor in the home may be more important than unemployment when it comes to delinquency, particularly for Prime Loans. I do not know if this applies to other categories, and I do not know how to put prime loans in the context of size compared to the entire mortgage market. But the whole point of this is to figure out if deliquency is driving some of the retail spending. If Prime Loans holders are simply stopping payment b/c of a loss of equity and not a job, this would seem to reinforce that idea.

  7. mtlippincott says:

    Well shit – the table didn’t post right, let me try it again:

    Prime Loan – Monthly Transition Rates (in %)

    Unemployment Rate CLTV CLTV CLTV CLTV
    (3 months prior) 120%
    12% .18 .51 .97 2.05

    Again, I found it interesting but I really don’t know if this provides a meaningful counterpoint of data to your argument, BR. It should just seemed like important info to know that for Prime Loans, at least, defaults may be more sensitive to equity in the home and not employment.

  8. Being underwater turns out to be a bigger driver of voluntary walkaways

    Regardless, they (Unemployment/Underwater) are not mutually exclusive

  9. TheUnrepentantGunner says:


    I get why Florida, with it’s extremely generous Homesteading provisions, makes it an interesting state for people that are at high risk of losing everything they have (legitimate or illegitimate startups, anaesthesologists (sic), etc etc.)

    Why would the homesteading provisions drive up the non-payment rate though? it should still be theoretically the same process to evict someone there since the mortgage payers don’t own their mortgage no?

    What piece of the outlier for florida is the homesteading provisions (under 9600 sq ft and its yours to sit in!), and what percentage was just the same factors that were driving arizona and Nevada (ie: climate, people overestimating the expected migration, low taxes driving prices of houses higher and higher), etc etc.

  10. mtlippincott says:

    Ok – for some reason wordpress hates my table. Will try to post later.

  11. daveirl says:

    How about the idea that high ownership drives high unemployment. If you are a renter and you lose your job you’re far more flexible to move where there is a job. Owning a home on the flipside makes people stay where they are.

  12. mtlippincott says:

    I guess I have to do it this way unless someone can tell me how to do it better. Here goes.

    Monthly Transition Rates (in %) for Prime Loans w/CLTV <=80% (i.e., lots of equity)

    Unemployment Rate 3 months ago 12%: .18

    Monthly Transition Rates (in %) for Prime Loans w/CLTV 81-100% (i.e., not underwater)

    Unemployment Rate 3 months ago 12%: .51

    Monthly Transition Rates (in %) for Prime Loans w/CLTV 101-120% (i.e., underwater)

    Unemployment Rate 3 months ago 12%: .97

    Monthly Transition Rates (in %) for Prime Loans w/CLTV >120% (i.e., deeply underwater)

    Unemployment Rate 3 months ago 12%: 2.05

  13. mtlippincott says:

    Ok just fuck it all.

    If anyone knows how to post a damn table in these comments let me know.

  14. mtlippincott says:

    Looks like you saw that main point anyway, BR.

  15. The Curmudgeon says:

    Florida’s homestead laws make it an attractive place to bankrupt, but only if you don’t have a mortgage. It means you can protect a whole pile of dough if you put it all in your house. It should have little impact on foreclosures. You still lose the house if you can’t pay the mortgage, even in bankruptcy. Their laws aren’t that ridiculous.

    Here’s a different narrative explaining increasing consumer spending in the face of high unemployment. Consumer spending has a low beyond which it can’t go. People still have to eat, no matter how poor they are. Unemployment compensation has extended their ability to do so.

    But more importantly, this recession has affected the lower earners more than the high earners. Remember Goldie? They had record profits this year. Joe the mechanic, he’s struggling. One Goldie employee makes what about 20 Joe the mechanics do. Goldie’s employees are living it up. It shows in consumer spending. Look at Wal-mart’s results. It’s barely scraping by. That’s where Joe shops. It’s two different worlds that are aggregated to come up with one number: consumer spending. Any increase in it misses the pain the average guy is experiencing relative to his much richer cohort in banking or finance or government or any of the other myriad industries where this recession has been lucrative.

  16. WillK says:

    This seems like such an obvious proposition. Lenders qualify normal mortgages based on income and most borrowers pay mortgages out of income. Therefore, if income is lost or substantially reduced, so is the ability to make payments. Florida and Nevada could be accounted for based on high levels of abnormal mortgages (no doc, NINJA), those with lost income not captured in the unemployment data (anecdotally, the retiree who had been living off income from a Lehman Brothers money market account), or could reflect a difference in time lag affect — meaning how long a household can survive loss of income before missing payments.

    Less obvious is the relationship between underwater mortgages and delinquency. A lack of equity in the house has no directly affect on the ability to make monthly payments.

  17. TheUnrepentantGunner says:

    curmudgeon thats what i thought. couldnt see how homesteading rules drive foreclosures, more how homesteading rules drive people in shady business to buy 5k square foot houses near the water with striaght cash.

  18. johnnywalker says:

    How about a similar analysis using smaller, more homogeneous populations (congressional districts?). I would like to see pairwise regressions comparing delinquency rates, unemployment rates, per-capita consumer spending, average home equity, per-capita income, and average net worth. I can guess what the analysis would reveal. Unlike a talking head on TV, I’m not going to present it as truth without seeing the supporting data.

  19. ashpelham2 says:

    Let’s just step back away from data and what we would usually expect to happen in an ordinary downturn with ordinary unemployment, and ordinary asset prices. None of those rules apply per se in this case.

    Instead, we have a far right extreme recession, one in which ALL asset values are depressed, some by huge amounts, with no recovery in the near term expected. Those are some bleak prospects. Secondly, we have 16% real unemployment, which is higher than a typical recession, and it will stay higher much longer than should be.

    Now, with those things in mind, you tell me: If I was watching an asset I speculated on with debt continue to drop in value, while my debt service stayed the same or INCREASED as a part of my budget, which is now shot-to-shit because I don’t have income, WHAT WOULD YOU DO?

    Walkaways are going to be the norm, not the exception, and they might indeed be what is known as strategic defaults, freeing up whatever income is left for other expenditures. It’s just not in the scale that anecdotal evidence has been sold to us as true.

  20. santamonica says:

    The correlation would depend greatly on the individual’s “balance sheet” – things such as mortgage debt/value of home, reserves to weather unemployment, living in low housing cost areas (reducing default risk), etc. So I see the chart more as a look at fiscal conservatism (balance sheet based) in various states.

  21. Jim Hodson says:

    23 states have redemption periods ranging from 10 days to a year. Almost all those states that are more towards a year are below the trend line. In other words, people can live in a home without paying longer.

    This would be another factor that implies a strong correlating lag in the foreclosure rate as a function of when people lose income. For these states people can put off foreclosure longer. What is concerning is that if one has a home with equity to try to bring current after an unemployment spell, then foreclosure could reasonably be avoided. When one has a home underwater, they are as good as gone and some of the same laws designed to protect them only allow further deterioration of the property and neighborhood. This hurts everyone.

    Jim Hodson
    Countdown To Buy

  22. winstongator says:

    I had thought that negative equity would lead to more delinquencies becoming foreclosures. If you have equity, a work-out could happen, but w/o equity not a whole lot of options. But I’ve reconsidered. Why would a bank not push through a foreclosure where it might book a profit, as opposed to a loan that once foreclosed would make a potential loss real?

    Lots of the walkaways were the speculator/investors (specuvestors) in FL, NV, CA & AZ. Most of them have given up and either been foreclosed or are close. Many of those deep underwater saw their homes as a great investment, and might behave more like an investor cutting losses than someone giving up on their home.

    This chart should be annotated with a main idea of this housing bubble/credit crisis/recession – it’s not one cause that is solely to blame. Because one factor has an impact does not mean that another does not also have an impact.

  23. alfred e says:

    IMHO Fla and Nev are two places most haunted by speculative buying. Time sharing, vacation home, or flippers. Or mafioso’s trying to retire.

    Not deadbeats walking away. Owners holding 100% loans that don’t have a credit issue. And are shrewd enough to cut their losses. And credit rating is irrelevant. Look how many times Trump filed bankruptcy and owned banks. Yet he’s still building arrogant stupidity.

    What’s the old saying? If I owe the bank $1000 they own me. If I owe them $1M I own them.

  24. AGG says:

    I believe the correlation would increase significantly if the defaults were tallied on investor owned properties as opposed to primary residence.
    There is a “get all you can while you still can” business model used in Florida and California by investors who rent houses, pocket the rent but neglect to pay the mortgages on various properties which are technically underwater.
    Also, many investors are self employed professionals. They never show up as unemployed unless a through analysis of the Social Security self employed payments data takes place.
    Is an investment newsletter writer unemployed if he doesn’t write a letter every week? How about a quant that doesn’t make a trade for three months because he’s on sabbatical? The government figures don’t (and won’t) tell the story of who’s working and who isn’t. Many investors are trust fund morons that have never worked a day in their life. Are they employed or did they just inherit wisely? Hell, the government’s definition of work is extremely pliable as it is. Perhaps a better metric is total compensation. We have a lot of executives that don’t really do anything that any serious person would consider work. And getting back to who pays their mortgages and who doesn’t, how would the data look if the investors had been required to sink 20% when they acquired the property? All of a sudden, even if the mortgahe is underwater, the greedy bastards have more skin in the game so they might want to use a portion of the rents they collect to pay the mortgages. As it is now, if $10,000,000 worth of bubble properties garners $360,000 a year (20 $500,000 houses charging a modest $1,500 a month rent), if there was no down payment and the only cost to the investor was closing costs (which he has long since recovered in rent) and maintenance is nill because they are all fairly new houses, why would an unscrupulous investor stay with the properties when the arm low monthly payments adjust? Forget the house valuation. These “parragons of integrity” wouldn’t have bought these “investment properties” at bubble prices in the first place unless they could get them without a down payment. No, there is no way this “defaulting will stop. The housing market is toast for at least a decade. The leech investors are just doing what any “good” wall street ceo would do; i.e. they are pocketing the rent money and letting the cops show up one day to oust the honest renter that doesn’t know his rent payment isn’t being used to pay the mortgage. To me, this is mens rea from the investors and deserves jail and/or fines.

  25. Rollcast says:

    One is not surprised that for most states in 2010 recent deliquencies are correlated with unemployement. It would also be interesting to see the correlation not with the rate, but with the actual numbers, because unemployement includes renters, and mortage deliquencies do not.

    It is important to note that an anomalously high number of deliquencies are occuring in AZ, CA, FL, and NV.

  26. Porsche87 says:

    This is a case where trying to link an outcome to a single cause doesn’t work. Is U-6 a factor, absolutely. As discussed above, so is overall price appreciation (bubble size), percentage of investors vs. owners, population age and industry concentration, to name a few. Each state (or better still, local area) has its own story to tell, and the answer is multiple choice, not true/false.

  27. [...] In CA? Where unemployment is 12.6%? Really? Via Barry Ritholtz: [...]

  28. TrueDisbeliever says:

    Nice catch, Barry.

    Maybe it’s just me, but it looks like CR ran the raw numbers, which happen to be percentages, rather than the (arithmetic or log) rates of change of the raw numbers, which would help avoid spurious correlations.

    I happen to believe there’s a relationship, but I think the way the chart is presented suggests we can get a more accurate picture.

    Would’ve re-run this myself by I lack the cash for the mbaa data and haven’t found it gratis.

  29. d4winds says: