Can the Housing Market Pass 2026’s “Stress Test”?

Every crash, every downturn, every recession has its warning signs. Sometimes you only see them after the fact. But there are many indicators we can actually watch right now to see if something sinister is lurking in the housing market or the greater economy. And luckily we have good data. We can actually look and see right now if a big decline or even a 2008 style housing market collapse is right around the corner. The data that I'm talking about measures levels of stress in the market by looking at credit and debt and how well people are paying back that debt. We can look at indicators like mortgage delinquencies, credit card delinquencies, private credit, actual foreclosures, and get critical insight into how our economy and how our housing market may perform in the coming months or years. The information I'm talking about is not fear mongering. It's not going to paint some overly rosy description of the market. And today on the market, we're going to do it. We're going to stress test the housing market and the rest of the economy and see how resilient the U S economy really is. Hey everyone. Welcome to on the market. I'm Dave Meyer, chief investment officer at bigger pockets. I'm an economic and housing analyst, and I've been a real estate investor for 16 years. Welcome to the show. I am glad to have you all here for an important episode because we're going to be talking about stress or the lack of stress in the economy right now, because a lot of times recessions crashes, these kinds of things, they feel like they come from nowhere. And part of that is true. No one really knows exactly when or how the market cycles will be timed, but there are indicators that we can look at that will tell us how risky things are and where we are in the broader economic cycle. And for that, one of the indicators I personally keep a very close eye on and like to look at is credit stress. It's just a fancy term for basically our people paying back their debt. Are they paying back their loans on time? And as agreed, because for better or worse, our economy is largely dependent on debt and debt goes through cycles in good times. People borrow more and more until at some point the music stops. People start getting behind or even default. And that often brings about a resetting of debt during which time, honestly, the economy often suffers until it bottoms out. Some of those loans get written off and growth can start again. And this happens all across the economy. And it definitely happens in real estate, as we certainly saw in 2008. But it happens other places too, like credit cards, auto loans, private credit, government debt, all of it. And by looking into this, how stressed credit is can tell us a ton about where we are as a market and where we are as an economy. This is really a valuable exercise and it's what we're going to do on the show today. First, we'll dive deep into real estate credit. We'll look at differences in single family and residential mortgages. We'll look at multifamily and some other commercial loans. Then we'll talk about credit and how it's working across other parts of the economy. Stuff I mentioned earlier, like credit cards, auto loans, student loans. And we're going to look at that specifically because there's some really interesting and honestly, I'll just tell you now, concerning data on those fronts. And then at the end of the show, we'll talk about what the situation with credit across our economy means for you and your businesses. Let's get to it. First up, let's talk about the housing market and credit here. And I said it earlier in the intro, but let's just reiterate here why we care about this. I say this on the show all the time, but there's this concept in the housing market called forced selling. And I personally think it's one of the canaries in the coal mine, if you will. It's one of the early indicators that we can watch if we're going to see significant declines, crash, collapse, whatever you want to call it. And that's because housing is unique. People don't want to sell their homes for a loss. They don't want to be forced to move. And so what really is often the catalyst for a decline in the housing market is when people no longer have the option whether they want to sell or not because they're going to get foreclosed on, they're falling behind on their payments. That is often the major catalyst for a collapse. That's certainly what happened in 2008. Could something else happen where we saw collapse and there wasn't forced selling? Yeah, of course, we could see like a complete deterioration of demand. But keep in mind that the one time in the last 100 years when we saw a real crash, which was around the great financial crisis, it came about because of a supply shock. First and foremost, there was supply flooding the market, not because everyone all of a sudden decided, hey, I really want to move and sell my home because there were these adjustable rate mortgages. People could not keep up with their payments and they were forced to sell that flooded the market with inventory and pushed prices down. And although, like I said, other things could happen without a foreclosure wave from forced selling, prices can stagnate. They can even soften like what we've been seeing over the last couple of years. But a true crash almost always comes with distressed inventory flooding the market. So we're going to look at what's happening today with credit distress. But first, I want to sort of just set the baseline here. Like, let's just start actually back at the great financial crisis and talk about what stress levels looked like, because then we can compare that to what they were like in 2009, sort of pre-pandemic. We'll also compare it to what they look like today. The peak of the financial crisis in terms of housing was sort of in 2009, actually. The national mortgage delinquency rate, so people not paying their mortgage on time, hit nine and a quarter percent. That is the highest it was ever recorded at. You know, this was only tracked back to 1972. But since 1972, that was and still is the highest mortgage delinquency rates have ever been. There are some subcategories of delinquencies like serious delinquencies, which is 90 days late. That peaked at about 5% in 2010. Just for more reference, foreclosures, which are more serious than delinquencies. This is all part of the same sort of pipeline, if you will. People go 30 days late, then 60, then 90. There's pre-foreclosures, then there's actually foreclosure filings. That peaked at nearly 3 million, 2.9 million in 2010. That is huge. That's roughly 22 in every 1,000 households nationally. That is a ton. And if you live through this, you know that this lasted a while, right? It started in 2008, 2009, where delinquencies went up, then foreclosures went up. And it took nearly five years for all this to work through the system. Foreclosures take a long time. Short sales can take a long time. So it took five years for this to normalize. But by 2019, which is often the year that I use as a reference point on this show, because it was the year before the pandemic, and it's one of the more quote-unquote normal years that we've had in recent history. It's hard to call a lot of the last few years normal. And so by 2019, a quote-unquote normal market, things were actually looking pretty good. The national delinquency rate at that point was right around, it was a little bit below 4%. Just as a reminder, in 2009, it was more than double that at 9.25%. Foreclosures that year in 2018, 2019 were about 400,000. That is down more than 80% from the nearly 3 million we had in 2010. So huge distress, great financial crisis. Before the pandemic, things were pretty normal. So what about today? Where do we sit in the spectrum of distress in the United States? Well, as of today, as of March, that's the last month we have good data for, we can see that national first lien delinquency, so delinquencies on normal mortgages, are at about 3.35%. So keep that in mind. If you're tracking here, in 2019, the last quote-unquote normal year in the housing market, it was nearly 4%. So we were still significantly under where we were in 2019. And good news here is that actually that delinquency rate fell from February to March. It is actually down 37 basis points. A basis point is 0.01%, right? So it went down 0.37% from February to March. Now you're probably hearing that delinquency and stress in the market is up and that is true, right? It is higher than it was last year. It was 14 basis points higher than it was last year. So not crazy, but remember that is down 0.6% below COVID numbers. No one, no one was complaining about delinquency rates. No one said we were in a foreclosure crisis in 2019. So keep this in mind when you hear people on social media or whatever saying foreclosures are up, stress is up. Yes, it is up, but it is up from artificially low rates. Because remember what happened during the pandemic? We had forbearance closures. We had eviction moratoriums. We had all these programs put in place by lenders and by the government to suppress foreclosures. And it worked, we didn't have a foreclosure crisis during COVID, which was a fear at the beginning. It kind of seems crazy now, but it was a fear at the beginning of the pandemic that we were going to see a big foreclosure crisis. That didn't happen. And so what we're seeing now is what I would call a normalization. It's a reversion to average, right? We are getting back to quote unquote, normal levels. We're not even at normal levels, right? We're still below normal levels. So seeing it go up is not unusual. It's actually what would be expected. And it is basically a function, in my opinion, of those foreclosure moratoriums winding down and the foreclosures that should have been processed during the early 2020s are now being processed. That is basically what's happening. And there's actually data to back this up, right? We are seeing two simultaneous trends here that are pretty important that give me confidence in this opinion. First and foremost, is that delinquency performance actually improved over the last couple of months. And you can see it if you are a nerd like me and you look at this data really carefully, you can see that new delinquencies are actually going down. It fell 23% in March. But at the same time, what's getting worse is serious delinquencies. So the delinquencies that are further down that pipeline that I was describing earlier are going up. It's kind of like a, you know, people talk about this like a, you know, when a snake eats something, they eat it whole and sort of like works its way through its body, that big bump that works its way through. That's what's happening in foreclosure crisis right now. There's not a lot of new delinquency, but those old delinquencies that were delayed and forestalled are now working their way through that pipeline. And so we're seeing more serious delinquencies and we'll talk about this in a minute, but we're seeing more foreclosure filings. But the overall delinquency rate and the new delinquency rates are actually down. And so this nuance, although I know it can be a little confusing because there's a lot of data points here, the big picture thing here is that foreclosures and delinquencies in a macro scale are not bad. They are below pre-pandemic levels. The new delinquencies are going down, but the sort of tail end of the pipeline is increasing because they were delayed so long that those old foreclosures and delinquencies need to work their way through. That is where we stand today. Could things get worse? We'll talk about that later. But yeah, of course things could get worse. But right now there is no evidence of a foreclosure crisis. There is no evidence of a delinquency crisis. By and large, Americans are paying their mortgages on time at historically good rates. Not the best ever, but like compared to history, it is very good right now. But of course there are some nuances to this. There are corners of the market that are more concerning and we should talk about that. The first part is FHA. FHA loans tend to go towards lower income and first-time homebuyers. And there are signs that there is some serious distress going on here. Out of all those delinquencies I mentioned before, still low total, but of those delinquencies, more than half of them are FHA loans. And that's true even though FHA loans only make up for like 10-11% of the market. So if you look at where the stress is coming from, more than half of it coming from FHA loans. At the end of last year, the serious delinquency rate for FHA was over 11%, but compare that to just 1.6% for all mortgages. FHA is the source of most of the stress that we're seeing in the market. So is this concerning? Yes, of course you don't want to see stress here, but I want to reiterate that FHA is a small part of the total mortgage market, just about 10% or 11%. And it is folded into those bigger numbers. So when I say that delinquency rates are below where they were in 2019, that is including the increase in FHA. Now with the FHA, there are some interesting geographic concentrations here that you should know about. A lot of the FHA distress is coming in the South. And this is because, I think personally, I believe primarily because insurance costs, property taxes are up, and just like the bigger picture about housing affordability is worse there. People are getting squeezed. And remember, these are first-time home buyers. The whole FHA program is designed for people with lower incomes, lower credit scores. These people are more economically sensitive. And so when insurance costs and secondary costs start to go up, that can create stress. In addition, the New York Fed put out some data that shows that student loan delinquencies rates are unusually high in Southern states. So a lot of things are converging here on FHA borrowers in the South. That is where we are seeing the biggest concentration of stress in the market. This is something we should keep an eye on. FHA is something we're going to keep an eye on. But to sum this whole thing up, things are looking fine in terms of residential mortgages. I think late-stage delinquencies, foreclosures are normalizing, but there is no sign that delinquencies or foreclosures are really going to accelerate to any sort of concerning level anytime in the near future. But when we turn our attention to commercial real estate, that is a totally different story. In my opinion, the big picture here is that commercial real estate stress is real and it is actually growing and it could get worse. So right now in early 2026, commercial mortgage-backed securities, CMBS delinquency rates for multifamily are hitting around 7%. This compares to basically none in 2021, 2022 when things were really good. If you look at office, the office is scary. If you look at office CMBS delinquencies, that's above 12% right now. That is the highest it's ever been on record. And so we are seeing a serious situation in commercial real estate. And this is not a surprise. Since I don't even know, last three years of this show, we have been talking about how we expect distress to come in multifamily. And that is happening, right? We are starting to see those stress rates go up. And I actually think it's going to start moving from just behind on your mortgage payments to we're actually going to start to see some forced selling. We're already starting to see forced selling. We're going to see more stress, more banks taking back properties, more forced selling in the commercial real estate space. Now we'll talk about this in a minute that creates risk, of course, to the operators. It also creates opportunity for people who want to go out and buy at discounted rates. But let's just remember first why this is happening in the first place. Unlike residential mortgages, where most loans are on fixed rate debt, where you lock in your payment and that's what you pay for 30 years, commercial real estate is almost always adjustable rate debt, where you get one interest rate for three, five, seven, sometimes 10 years. And then it adjusts that interest rate adjust based on what's going on in the market at that time. Typically, the cheapest mortgages you can get are those three year adjustable rate mortgages. If you want the best possible rate to maximize your cash flow in the short term, you go out and get a three year adjustable rate loan, which obviously has some benefits, but comes with risk. And we're seeing a lot of that risk come to fruition right now. In just the next couple of years, two or three years now, we're going to have nearly a trillion dollars in multifamily debt mature. Now, that's not an unusually high number. People throw out those numbers and they're like, oh my God, there's this maturity wall. I don't think that's true because adjustable rates are usually between three and seven years. Let's call it five years on average, right? Because on average loans and every five years, one fifth of the total commercial mortgage backed securities market is going to be due in any given year. And these next few years are no exception. So we're just seeing the normal churn through adjustable rate mortgages. And for people who bought in 21 or 22, that's going to be shocking, right? People who bought at a 3%, a 4% mortgage, we're now going to go to a 7% or 8% mortgage. They might not be able to pay. They might fall behind quickly. They are falling behind quickly. That's why we're seeing delinquencies rates at 7% right now. We're in office for 12% because even if your income, your revenue stays the same, your cash flow is going to get eaten into because your debt service payments are going to go up significantly. That is also happening, unfortunately, at the same time where rents really aren't growing. And at the same time, where other expenses like insurance and taxes are going up. And so we have this sort of perfect storm scenario in commercial real estate where NOIs are flat or negative, your net operating income, right? Which is basically just your profit without debt service. So your NOI is flat usually for most people, obviously there's exceptions, but on average, they're flat or down a little bit. And at the same time, your expenses in terms of your debt service are going up. This is going to create stress. Not unpredictable. We've been warning about this on the show for two or three years that this was going to happen, but we are finally starting to see this actually show up in the data because a lot of lenders and operators were just successfully kicking the can down the road. They were doing extensions, they were getting waivers, not so much anymore. I think everyone is seeing rates aren't going down. And so kicking the can down the road three months or six months, if you're the bank, it's not really going to help you. You're not really doing yourself any favors. And so they're getting serious about forcing a sale, forcing a refi, forcing a capital call and an equity injection, the things that they do to try and get these loans to perform. And some people will do it. Some people will figure it out, but many won't. And that's why we're seeing this stress. I don't know about you, but I have been hearing more and more about this just from people I know who are in the industry, but it's just becoming more and more frequent to hear about this. Like just for example, on the bigger pockets forums in the bigger pockets community, I read pretty frequently about multifamily syndications that are going to zero people who invested as LPs, limited partners in a lot of syndications, high profile syndications are losing their money. We are also seeing people have to do capital calls where investors have to put more money into these deals. And I'm not happy about that. I don't want anyone to lose their shirt, but a lot of people got into this industry in 21 and 22, because multifamily was very attractive back then. Rents were growing. You could get cheap debt, but the good times haven't lasted forever. And so I'm already starting to see more foreclosures. I talked to someone, a big multifamily operator who said they were getting, buying multifamily deals for 40 cents on the dollar from banks right now, because banks are taking these sales back. And oftentimes they're sold off market, but we're starting to see serious distress in this market. And I personally think it's going to get worse, which means as we're going to talk about in a little bit, more and more opportunity. If you want to buy multifamily, I would encourage you not to be turned off by the entire asset class, because what you're going to hear in the media and hear on social media is negative. That is true. Where you're going to read about this. You're going to see that big name syndicators, big name personalities lost investor money. And you're going to see that they're getting foreclosed on, that they had to sell at a loss, that there was a hundred percent losses. And again, I don't like that, but it often resets pricing, right? This is where prices come down. Again, I don't think we're going to see this crash in the residential market, but will we see significant declines in multifamily? Yeah, I think so. Nationally, they're already down 15, 20%. They could go down more. In certain markets, they're going to be down 30 or 40%. And to me, that's a buying opportunity. Whether you want to buy them on your own, if you want to invest in syndications, I really encourage people not to write off the entire idea of syndications, just because a lot of high profile syndicators have lost their shirts and lost a lot of money. Syndication's just a deal format. It's a deal structure. If you find a good operator who buys a good asset at a good price, right? Like still a good opportunity. So I would not write this off, but be prepared to see a lot of negative media about the multifamily market in the next couple of years, just like how the residential market was very negative in 2010 and 2011. And everyone is now wishing that they bought more deals back then. So obviously there's nuances and differences to this, but these kinds of events where there was stress, it's the end of the cycle. The cycle ending means that prices go down before it can start growing again. And that's an opportunity to jump in. But before we talk about opportunity and what you should do about that, I just want to call out a couple of other things because we just got data from the New York Federal Reserve about what's going on with debt in other parts of the economy, specifically looking at student loans, credit card debt, auto loans, HELOCs, that kind of stuff. I'm going to just start with the two concerning ones. First, let's talk about credit card debt. Credit card debt, problem in the United States pretty much all the time. But from 2014 to 2023-ish, it was doing better actually. We were somewhere around 7% or 8% in terms of credit card debt delinquency rates, serious delinquencies of 90 days plus. Since 2013 and rates started to go up, we went from about 8% to now about 13%. That's a lot. I know that doesn't sound like a crazy number, but if you can Google this or if you're watching this on YouTube, we'll put the graph up. But you can see that it's basically just pointing up and to the right. Credit card debt is getting worse and there's no signs right now that it's slowing down. This is one of the reasons on the show I continuously talk about stress in the market. We're not officially in a recession, but when you look at how American consumers are faring, this is concerning. Credit card debt is concerning. Credit card debt is not so big that it has these global implications like when the mortgage debt market collapsed in 2008 and created this whole cascading show across the entire world because the total size of the US housing market is massive. Credit card debt is not like that. It's in the $1 trillion range instead of $35 trillion. It's a totally different scale, but it shows their stress on American consumers and it can spill over. If you combine that with other kinds of consumer debt in the United States, the picture looks similarly concerning. Not emergency levels, but concerning. We have seen student loan debt. Those delinquency rates are back around 10%. I'm personally not overly concerned about that right now. Actually, before the pandemic when student loan forgiveness and the payments were kind of kicked off for a while, it was like 11% or 12%. So we're getting back to where we were. Not super high concerning rates right now, but as a real estate investor, it's something you should be thinking about. I told you earlier that a lot of what we're seeing in FHA delinquency rates are coming from a combination of higher costs and people getting money squeezed in other parts of their lives. The resumption of student loan payments is taking money that they might have put towards rent or towards their mortgages, and they have to pay those loans back now as they had originally agreed to, and that could be contributing to why credit card debt is going up, for example. If we look at auto loans, those are creeping up from 4% to about 6%, and so just basically everywhere across the economy, except residential mortgages, things are looking a little bit worse. I guess right now, I don't feel like this is an emergency, but I also have a hard time seeing how this gets better in the meantime. We're already seeing slowdown in the labor market. If you listened to my show last week about the normal person Main Street recession, you know that inflation is now rising faster than incomes, and so that's going to stretch people further. This stuff can impact your portfolio, so let's talk about that. Let's put this all together, big picture what this means for you. I'm just going to say it again because I know people ask me every day, and they send me crazy data about it every day, but market not really at risk of a crash right now. We would see it. We would see delinquency data. We would see foreclosure data. It would tell us that there is going to be forced selling in the market. We do not see that in the data. We do not see that in the data I talked about today. We don't see that in the inventory data. We don't see that in the new listing data. We just aren't really that high of a risk of a crash right now. Now, if unemployment goes up to 10, 15 percent, if all the worst fears about AI come to fruition, could that change? Yeah, it definitely could, but as of right now and on the show, we talk about things there are evidence of. There is no evidence of that happening, but there are pockets of distress which create risk and opportunity. This is what I think you should mostly be thinking about. Risk, multifamily, right? Number one, multifamily risk for existing operators. If you're in syndications that are going bad, I would seriously think hard about whether you want to do capital calls and put money into those things because there's no turn around the corner where things are necessarily going to get better. If you are looking to buy multifamily, I think there is going to be great opportunity, but there is a lot of risk here. You have to buy at a great price. You cannot buy at these cap rates that people are offering in large part on the market right now for five percent cap rates, especially in the Sunbelt. You need to be buying at distressed pricing. You can't act like things are fine and rents are going to go up next year. We don't know. I don't think they're going to. If you want to operate in these spaces, huge opportunity. Can you buy something from a bank? Can you get something that is distressed? Great. Do that, but make sure you're buying it at distressed prices. That is really the key here because the way to get these opportunities while protecting yourself is to buy really, really deep. See if you can buy from distressed sellers. I'm not advocating. I don't want anyone to lose their shirt. I really, really don't, but some people are going to. That is just reality. Maybe you can be the solution to that. Maybe you can buy something off their hands. They might lose money on it, but you might be able to help them out of a bad situation and create a future growth opportunity from yourself. I really think multifamily is going to be interesting for the next year or two, but you got to do it safe. The second thing I'm personally changing about my approach to real estate based on this data, and what I think you all should consider as well, is I think that vacancy risk is going up, and I think late payment risk is going up. Again, not a full blown crisis, not a reason to panic, but I'm going to put this into my underwriting. I am going to increase what I expect vacancy to be, and I don't really forecast my own late payments, but I do think if you have tenants who maybe don't have the best credit score, the best repayment history, I would expect late payments to start to go up because it's the overall debt situation, not in the housing market that has me worried, but it's really about student loan delinquencies, auto loan delinquencies, credit card delinquencies. Those things do not happen in a vacuum. Every individual, every person that you rent to has a limited pool of money, and if they're getting stressed in one part of their life, it could spread to other parts of your life, and this is why I don't expect a quick turnaround on rents. It's why I expect cash flows to be struggling for the next year or so because if vacancy and late payments or non-payments start to go up, that can hurt your bottom line. Doesn't mean you shouldn't buy. Again, I think there's great opportunity, but build this into your underwriting. Assume higher vacancy. Assume lower rent growth. Assume that you might not be able to collect 100% of your rents, especially in multifamily, and if you can make deals work, if you can buy at distressed price with those assumptions, man, there's going to be good opportunity. I really think so. I really think there's going to be good deals if you can do that, but you have to have the discipline and the patience to do the underwriting right. We are in a higher risk scenario. That's where the reward comes, but don't take on unnecessary risk. Third thing I'll say, if you're going to go out and buy that multifamily, lock up the interest rate as long as you can. Personally, I would even pay more to get a fixed rate for 15 years or 30 years. Try and get that 10-year adjustable rate if you can. Those are available. You might have to pay a little bit higher interest rate, but build that into your underwriting. If you're negotiating with the seller, say, I have to have a higher interest rate because I'm only willing to take on a 10-year adjustable rate or I'm only willing to take on fixed rate debt. If the seller can't meet your price where that works, don't buy it. Wait. Be patient. More deals are going to come. That's how I see things. I think in residential, it's market by market. We're going to continue to see softening. The Case Shiller came out today. Home price is nationally up less than 1%. This year, as I've been predicting for a while, I think the housing market is going to be pretty close to flat this year, but there are going to be good deals there as well. It's not going to come from distress in the immediate future. If you're thinking, I'm going to go to the courthouse auction to buy a single family home, maybe. Maybe in the Southeast. Maybe in certain markets. Indiana has a high foreclosure rate. New Jersey has a high foreclosure rate. You can check those places out. I think overall, you're better off looking for deals elsewhere. Negotiating with sellers who want to sell, who want to move, and things have been sitting on the market. I think looking for high days on market deals is a better way than looking for stress in the residential market right now, at least at volume. You might find a couple, but I think if you're looking for a lot of deal flow, negotiating with people who have put their houses on the market or pocket listings and who are willing to take a slightly lower price or 10% discount to move something quickly, to me, that's where the opportunity lies in residential. Commercial, it probably lies in distress. That's it. That's our credit stress report for today. Thank you all so much for watching this episode of On The Market. I'm Dave Meyer. I'll see you next time.