A new analysis by real estate data firm Black Knight has discovered around 450,000 casualties from this spring’s home-buying frenzy.
That’s the number of homes bought across America this year whose owners are now at least marginally underwater on their mortgages, amounting to 8 percent of all homes sold in 2022. A further 40 percent of homes sold this year were in “limited equity positions” as of Oct. 31, Black Knight’s monthly Mortgage Monitor report found, meaning that their owners own 10 percent of the home’s value or less.
The culprit: declining home values in many parts of the country since mortgage interest rates soared from around 3 percent at the start of the spring homebuying season to over 7 percent by the fall, driving buyers out of the market in droves.
“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,” Black Knight Data & Analytics President Ben Graboske said in a statement.
Most of these underwater loans were also VA and FHA loans, Black Knight reported, which are popular with first-time and lower-income buyers who typically don’t have the kinds of cash needed to either make a 20 percent down payment and may not have the job stability to weather a prolonged recession.
In Massachusetts’ two biggest housing markets, however, the picture is notably better than the national numbers would suggest. In Greater Boston, Black Knight said, only 3 percent of mortgaged homes bought in 2022 are underwater, and another 22 percent have limited equity. In Worcester, those figures are 3.7 percent and 34 percent, respectively.
With Redfin reporting last week that a record 2 percent of U.S. homes for sale were delisted each week on average during the 12 weeks ending Nov. 20, compared with 1.6 percent one year earlier, could the effects of seasonality – sellers typically pull homes off the market as the holidays approach to avoid disruptions to what’s often a busy time of life – have the potential to make the problem worse?
So far the record inventory shortage is giving the nation’s housing markets something of a life preserver, Black Knight reported. The nation is around 500,000 listings short of the 2017-2019 trend, Graboske said.
“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,” Graboske said.
