Black Knight Mortgage Monitor: Home Prices Increased Month-to-month to New Record High in May

National Payment to Income Ratio Increased to Near Record

Press Release: Black Knight: Housing Market Reignites as Home Prices Hit New Record High in May; Inventory, Affordability Continue to Plague Potential Buyers

Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its latest Mortgage Monitor report, based on the company’s industry-leading mortgage, real estate and public records data sets. As the nation approaches the traditional end of the spring homebuying season, there are distinct signs of market reheating – almost universally in markets across the United States. As Black Knight Vice President of Enterprise Research Andy Walden explains, five consecutive months of gains have completely reversed the pullback in home prices that began in July 2022.

“There is no doubt that the housing market has reignited from a home price perspective,” said Walden. “Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight HPI to a new record high in May. Though the backward-looking annual growth rate dipped to 0.1%, May’s exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months. The reheating is widespread, with more than half of the 50 largest U.S. markets seeing prices at or above 2022 peaks. While prices are still well below peak levels across the West and in many pandemic boom towns, price firming in recent months has begun to close those gaps. Austin, Texas, remains the notable exception; inventory there continues to run above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below peak, the largest gap of any market. Just eight of the top 50 markets are currently more than 5% below their 2022 peaks.

“Unlike Austin, for-sale inventory is moving the other direction in much of the country. Active listings have deteriorated in 95% of major markets so far this year and, overall, we’re still down more than 50% from pre-pandemic levels. New construction starts and completions were both strong in May, which is welcome news. However, most projects underway in the month were 5+ multi-family units, as opposed to single-family residential (SFR) units. SFRs made up just 40% of the total and is now at construction levels still approximately -30% below the 2005 peak. As it stands, housing affordability remains dangerously close to the 37-year lows reached late last year, despite the Federal Reserve’s attempts to cool the market. The challenge for the Fed now is to chart a path forward toward a ‘soft landing’ without reheating the housing market and reigniting inflation. But the same lever used to reduce demand – that is, raising rates – has not only made housing unaffordable almost universally across major markets, it has also resulted in significant supply shortages by discouraging potential sellers unwilling to list in such an environment, further strengthening prices. At this point, even if rates come down, but not so sharply as to entice potential sellers out of their sub-3.5% mortgages, it could risk a widespread reheating of home prices across the U.S.”
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House Prices Increased in May

Note: The Black Knight House Price Index (HPI) is a repeat sales index. Black Knight reports the median price change of the repeat sales. Here is a graph of the Black Knight HPI. The index is only up 0.1% year-over-year.

• On a seasonally adjusted basis, Black Knight’s Home Price Index hit a new record high in May, having now fully reversed the correction in home prices seen late last year

» May’s +0.70% seasonally adjusted month-over-month gain is equivalent to an annualized growth rate of 8.9%, suggesting an upcoming inflection (reheating) in the annual home price growth rate

» Despite the annual home price growth rate – a backward looking metric – sitting at just 0.1%, home price growth was exceptionally strong in May with prices rising for the fifth consecutive month

» If recent trends hold true, that annual home price growth rate would remain at or near 0% for a very small handful of months before trending sharply higher

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National Payment to Income Ratio Increased to Near Record

This was as of June 22nd when mortgage rates (according to the Freddie Mac PMMS), were at 6.67%. Rates have increased since then, and it is likely the payment-to-income ratio is now at a new record high.

Black Knight on the payment to income ratio:

• After a modest improvement in early 2023, home affordability has worsened in recent months fueled by both rising home prices and rising interest rates

• As of June 22, with 30-year rates at 6.67%, it required $2,258 per month in principal and interest to make the monthly payment on a median-priced home with 20% down and a 30-year mortgage, the highest such payment on record, marginally higher than the $2,234 required back in October

• Factoring in current income levels, that means 35.7% of the median household income would need to be allocated to the monthly payment of a median-priced home, making June the second least affordable month in the past 37 years

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Mortgage Delinquencies Decreased in May

Here is a graph on delinquencies from Black Knight. Overall delinquencies were down in May, and just above the record low in March.

• The national delinquency rate fell 11 basis points (bps) in May to 3.10%, returning to a near-record low after a calendar-driven spike in the prior month

• Borrowers a single payment past due improved by 94K (9.5%), erasing nearly half of the prior month’s increase

• Serious delinquencies – those 90+ days past due – showed continued improvement nationally, falling by 18K from April and are now 30% below the level of May 2022 and within 1% of their post Great Financial Crisis low point in 2019

There is much more in the mortgage monitor.