Black Knight Mortgage Monitor: Home Prices Declined in September; Down 2.6% since June

Worst 3-month Decline in Prices since early 2009

Note: The Black Knight House Price Index (HPI) is a repeat sales index. Black Knight reports the median price change of the repeat sales.

Press Release: Black Knight: Mortgage Holders Lose $1.3 Trillion in Equity in Q3 as House Price Correction Continues; Nationally, Homes Shed 2.6% of Value Over Past Three Months

Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. As home price corrections continue across much of the country – albeit at a slower pace nationally than seen over the prior two months – the impact on homeowner equity levels is becoming clear. As Black Knight Data & Analytics President Ben Graboske explains, after peaking in Q2 of this year, homeowner equity wealth saw record levels of contraction in Q3 2022.

“In the span of just three months, U.S. mortgage holders saw a total of $1.3 trillion in newly acquired equity evaporate,” said Graboske. “That is – by far – the largest quarterly decline on record by dollar value and since 2009 on a percentage basis. As we reported at the time, while hitting a record high in Q2, total homeowner equity peaked mid-quarter in May and has been pulling back ever since. All in, equity among mortgaged properties is now down nearly $1.5T since that point. From a risk perspective, we’ve already seen the number of underwater borrowers more than double alongside the equity pullback. That said, it’s important to note that – even with 275K falling underwater since May – fewer than half a million homeowners owe more on their homes than as currently valued. Historically speaking, that is still extremely low.

“Also, as we’ve covered in prior Mortgage Monitors, the vast majority of homes at risk of falling underwater are those that were purchased in 2022 and late 2021, at or near pandemic-era peak prices. This is obviously a situation that demands careful, ongoing monitoring, but to put that into context, just 3.6% of nearly 53M U.S. mortgage holders are either underwater or have less than 10% equity in their homes – roughly half the share coming into the pandemic. While additional declines may be on the horizon, homeowner positions remain broadly strong. Overall mortgage holder equity is still $5 trillion (+46%) above pre-pandemic levels, for an average gain of more than $92K per borrower in the time since. Of course, this – along with rising interest rates – increases the potential for even further headwinds in equity lending as well as heightened default risk.”
emphasis added

House Prices Declined in September

Here is a graph of the Black Knight HPI. The index is still up 10.1% year-over-year but declined for the third straight month in September and is now 2.6% off the peak in June.

• Housing market watchers are split on whether we will see meaningful price declines in coming months – or even years – due to low affordability, or a more lateral correction moderated by historically low inventory

• September’s data brought fodder for both sides of the debate, with home prices slipping for a third consecutive month, but at 0.52%, less than half the monthly declines seen in July and August

• All in, prices have fallen 2.6% since June – the first 3-month decline since 30-year rates spiked to near 5% back in late 2018, and the worst 3-month stretch since early 2009

Negative Equity Rates and Volumes

Here is a chart on homeowners with negative equity. This is historically very low.

• Though the number of underwater homeowners has climbed nearly 275K over the past four months – more than doubling the population – fewer than 500K homes are currently underwater nationwide

• Nationally, 3.6% of borrowers are either underwater or have less than 10% equity, roughly half the pre-pandemic share; a still historically low share (0.84%) are in negative equity positions

• As we discussed in our July Mortgage Monitor, the majority of homes at risk of falling underwater are those that were purchased in 2022 and late 2021 at or near pandemic-era peaks

National Payment to Income Ratio; Housing Least Affordable Since 1980s

And on the payment to income ratio (this is for September and mortgage rates moved even higher in October):

• With 30-year rates nearing 7%, it takes ~39% of the median household income to make the principal and interest (P&I) payment on the average-priced home purchase, the highest such share since 1984, and well above the long-run average of just under 25%

» The last time affordability was this tight, 30-year rates were over 13%, nearly twice today's offerings

» Buying power has been cut an additional 14% by rate increases even as home prices have pulled back from June 2022 peaks and is now down 38% from the same time last year

» The monthly P&I payment on the average home purchased with 20% down is up $937, marking the sharpest annual rise on record dating back to the mid-1970s

emphasis added

Mortgage Delinquencies Near Record Lows

Here is a graph on delinquencies from Black Knight. Overall delinquencies are near record lows.

• The national delinquency rate inched down 1 BP in September to 2.78%, just 3 BPS off the record low set in May of this year

• The month's decline runs counter to the typical seasonal trend, as the average August-to-September change (2000-2005) is a 27 BPS increase

There is much more in the mortgage monitor. For example, Black Knight also has data on the disaster status in Florida following hurricane Ian.