More Americans with government loans are falling behind on their mortgages, a warning sign for consumer health.

Conventional mortgage delinquencies are creeping up too, but much more slowly. At 2.62%, they remain below pre-pandemic levels and near historical lows. The divergence in that data likely reflects the extra economic pressures lower-income borrowers have faced in recent years, in particular high home prices, inflation, and the rapidly rising interest rates designed to address it.

“While the Fed is cutting rates, and that’s helped lift asset prices a little bit, those on the lower-income household side are not feeling any benefit,” said James Knightley, chief international economist at ING. “Their borrowing costs are not going down. If anything, they’ve been going up, and we still have sticky inflation that’s eating into spending power.”

January Consumer Price Index data showed prices up 3% from a year earlier, well above the Federal Reserve’s 2% goal. The Fed cut interest rates three times in late 2024 amid signs that inflation was easing and the job market was weakening, but is now on pause as inflation shows signs of persistence. Traders are now expecting a single rate cut this year.

Source: FINANCE.YAHOO