Black Knight Mortgage Monitor: Home Prices Declined in December; Down 5.3% since June

At Current Rate "annual home price growth rate [would] go negative within the next three months"

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: 57% of Recent Borrowers Used Rate Buydowns, With A Quarter Paying Two or More Points; Purchase and Cash-Out Most Impacted

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. While both home prices and interest rates have come down from 2022 peaks – boosting purchase lending rate lock activity – affordability remains a significant challenge in the market. As Black Knight Data & Analytics President Ben Graboske explains, one manifestation of this affordability challenge is the increasing trend of borrowers buying down their first lien interest rates by paying points up front.

“Based on our Optimal Blue rate lock data, we can see definite signs of a January uptick in purchase lending on lower rates and somewhat lower home prices,” said Graboske. “Indeed, locks on purchase mortgages soared 64% from the first through the fourth week in January. On the surface, it may seem the market has been stirred by a full point decline in interest rates and home prices coming off their peaks – but it’s not that simple. Yes, according to the Black Knight Home Price Index, December did see home values post their sixth consecutive monthly decline, and prices at the national level are now 5.3% off their June 2022 peaks. But affordability still has a stranglehold on much of the market, with the monthly mortgage payment on the average-priced home more than 40% higher than it was this time last year. It’s also important to keep January’s surge in purchase activity in perspective. While up, purchase locks were still running roughly 13% below pre-pandemic levels for the last full week of the month.

“What we’ve seen in response to this challenging environment is greater reliance on permanent rate buydowns by borrowers. There have been murmurs and stories around temporary buydowns, but those remain a relatively small share of originations in general. In the third week of January, 3% of purchase loans locked on Black Knight’s Optimal Blue platform included a temporary buydown. Just over 2% involved 2-year temporary buydowns. In contrast, the third week of January, 57% of all borrowers who locked in rates paid at least a half point, 44% paid at least a full point, and nearly a quarter lowered their rates with buydowns of two points or more. If that seems high, consider that back in September and October of last year, as many as 71% borrowers paid points with 43% paying two or more points. Prior to the pandemic-era housing boom, borrowers in 2018-2020 paid 0.5 points with a corresponding cost of around $1,500 – as compared to $4,300 today and as high as $6,900 last fall. Purchase borrowers, who now make up 81% of new rate locks, paid an average of 1.16 points. For those looking to pull cash out of their homes, the cost was nearly twice that, with an average 2.06 points paid.”
emphasis added

House Prices Declined in December

Here is a graph of the Black Knight HPI. The index is still up 5.0% year-over-year but declined for the sixth straight month in December and is now 5.3% off the peak in June.

• December’s 0.45% seasonally adjusted decline was roughly on par with the 0.48% average seen over the past 6 months, with an even sharper 0.89% decline on an unadjusted basis

• Nationally, home prices are now 5.3% off their summer peak (2.9% when accounting for typical seasonal patterns)

• December’s decline pushed the annual home price growth rate down to 5.0% -- now only 0.4% above its 30-year average – and the slowest home price growth rate since June 2020 in the early stages of the pandemic

• If the current rate of monthly declines persists, we would see the annual home price growth rate go negative within the next three months

National Payment to Income Ratio Declined in December

And on the payment to income ratio:

• After peaking at 38.4% in October when 30-year rates averaged nearly 7%, the national payment-to-income ratio has fallen below 35% for the first time since August, but remains above the peak levels seen in 2006 prior to the Great Financial Crisis

» The monthly mortgage payment required to purchase the average priced home using a 20% down 30-year rate mortgage has dipped by more than $200 since October, but remains nearly $600 (+41%) higher than it was at the same time last year

» Historically tight affordability is expected to continue to dampen demand and put downward pressure on home prices as we move into the traditional spring homebuying season

emphasis added

Mortgage Delinquencies Increased Slightly from Record Lows

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

• The national delinquency rate rose 7 BPS in December to 3.08%, but finished the year 30 BPS (-9%) below December 2021

• Delinquencies remained below pre-pandemic levels throughout most of 2022, with January-February being the exceptions

• Florida delinquencies rose marginally to 3.65% in December from 3.60% the month before, with nearly 8.8K new 90-day delinquencies (+21%) as the impact of hurricane Ian shifts through the pipeline

There is much more in the mortgage monitor.