Black Knight Mortgage Monitor: Home Prices Declined in October; Down 3.2% since June

"8% of 2022 Mortgaged Home Purchases Now Underwater"

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: 8% of 2022 Mortgaged Home Purchases Now Underwater; FHA Loans See Early-Payment Defaults Rise

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. Despite home price corrections continuing in many markets nationwide driven by tight affordability and higher rates, the pace of price declines has slowed measurably over the past two months. As Black Knight Data & Analytics President Ben Graboske explains, what would ordinarily be an environment ripe for steep declines in home prices has been offset somewhat by stagnant levels of for-sale inventory.

“We’ve now seen four consecutive months of home price pullbacks at the national level,” said Graboske. “But after a couple of significant drops earlier in the summer, the pace of cooling has slowed considerably, with October’s non-seasonally adjusted drop of just 0.43% the smallest decline yet. Though seemingly counterintuitive, the much higher rate environment may be limiting the pace of price corrections due to its dampening effect on inventory inflow and subsequent gridlock in home sale activity. While the median home price is now 3.2% off its June peak – down 1.5% on a seasonally adjusted basis – in a world of interest rates 6.5% and higher, affordability remains perilously close to a 35-year low. Add in the effects of typical seasonality and one might expect a far steeper correction in prices than we have endured so far, but the never-ending inventory shortage has served to counterbalance these other factors. Indeed, the volume of new for-sale listings in October was 19% below the 2017-2019 pre-pandemic average. This marks the largest deficit in six years outside of March and April 2020 when much of the country was in lockdown – with the overall market still more than half a million listings short of what we’d consider ‘normal’ by historical measures.

“Though the home price correction has slowed, it has still exposed a meaningful pocket of equity risk. Make no mistake: negative equity rates continue to run far below historical averages, but a clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic. Risk among earlier purchases is essentially nonexistent given the large equity cushions these mortgage holders are sitting on. More recent homebuyers don’t fare as well. Of the 450K underwater borrowers at the end of Q3, the mortgages of nearly 60% had been originated in the first nine months of 2022 – and these were overwhelmingly purchase loans. All in, 5% of purchase mortgages originated thus far in 2022 are now marginally underwater, with another 20% in low equity positions. Among FHA purchase mortgage holders specifically, more than 20% have slipped underwater and a full two-thirds have less than 10% equity. This is an illustrative and, unfortunately, potentially vulnerable cohort that we will continue to keep a close eye on in the months ahead.”
emphasis added

House Prices Declined in October

Here is a graph of the Black Knight HPI. The index is still up 9.3% year-over-year but declined for the fourth straight month in October and is now 3.2% off the peak in June.

• While near multi-decade low affordability would suggest home prices should be seeing strong declines, stalling inventory levels are holding home prices higher than current demand levels would suggest they should be

• Home prices fell 0.43% in October (-0.13% on a seasonally-adjusted basis), the smallest such decline – both actual and seasonally adjusted – since home prices peaked in June

• Likewise, home price growth cooled for the seventh consecutive month, to 9.3% in October from 10.6% the prior month, the lowest annual rate in >2 years

• The median home price nationally is now down 3.2% (-1.5% on a seasonally-adjusted basis) from its June peak but tight inventory has slowed the rate of decline in recent months

Homeowners with Negative Equity

Here is a chart on homeowners with negative and limited equity by vintage and loan purpose.

• Of the 450K mortgaged homes underwater at the end of Q3, nearly 60% are loans originated in 2022, with purchase loans representing 95%

• More than 250K borrowers who purchased in 2022 owe more than their home is now worth, while another ~1M have less than 10% equity

• Equity risk is almost entirely centered on purchases, with 8% of 2022 purchase loans now marginally underwater and 38% at less than 10% equity, while cash-out refinances remain in a strong equity position, with less than half of 1% currently underwater and only 2% with limited equity

• While a modest share of originations among Portfolio/PLS-held (2%) or GSE (1%) mortgages in 2022 are now marginally underwater, most risk is concentrated among FHA and VA mortgages

National Payment to Income Ratio “Uncomfortably close” to 40-Year High

And on the payment to income ratio (this is for mid-November):

• As of November 17, with the Freddie Mac PMMS at 6.61%, the monthly principal and interest (P&I) payment on the median-priced home purchased with 20% down was $2,171

• That’s down $65 from the month before, but up $838 (65%) from a year ago

• It also represents 37.4% of the median monthly household income, down slightly from October's 38.5%, but still uncomfortably close to the nearly 40-year high

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 rose 12 BPS in October to 2.91%, up 4.5% from the prior month, driven by a 67K rise in 30-day delinquencies

• The 9.4% national increase in early-stage delinquencies stood in sharp contrast to later stages, with loans 60-days past due rising a modest 2.9% and those three or more payments behind falling -1.5%

• While the increase is significant, early delinquencies remain 23% below the pre-pandemic level of October 2019

There is much more in the mortgage monitor.