Mortgage Monitor: Prices Offset by Stagnant Levels of Inventory

The latest Mortgage Monitor Report published by Black Knight’s Data and Analytics division revealed that despite home price correction occurring in many markets nationwide, the pace of declines has slowed measurably over the past two months. 

According to Ben Graboske, President of Black Knight’s Data and Analytics Division, 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.” 

Looking deeper, Black Knight found that the early-payment default rate has risen among FHA loans for much of the past year to reach its highest level since 2009. This ties into the equity risk discussed above as well. Such loans rely on rising home values and principal pay-downs over time to gradually improve their equity positions. 

Other key data tracked by Black Knight includes: 

• Black Knight’s HPI showed that while home prices continued to pull back in October, the month’s 0.43% decline (a seasonally adjusted 0.13% decrease) was the smallest seen since prices peaked in June 
• Annualized appreciation slowed to 9.3% from September’s 10.7%, marking the seventh consecutive month of cooling, but the smallest such decline since May 
• New for-sale listings in October were 19% (-94K) below 2017-2019 levels, marking the largest deficit in six years—outside of March and April 2020 when much of the country was in lockdown 
• Three months of stalled inventory growth is softening downward pressure on home prices from home affordability that still remains near 35-year lows 
• Despite the slowdown in price corrections, equity risk among 2022 purchase mortgages persists, while risk remains minimal among those who bought 12 or more months ago 
• Of all homes purchased with a mortgage in 2022, 8% are now at least marginally underwater and nearly 40% have less than 10% equity stakes in their home, a situation most concentrated among FHA/VA loans 
• Overall, at just 0.84%, negative equity rates among all mortgaged properties remain extremely low by historical standards 
• More than 25% of 2022 FHA/VA purchase mortgage holders have now dipped into negative equity, with 80% having less than 10% equity 
• Early-payment defaults – loans delinquent within six months of origination – have been rising among FHA borrowers over the past year and now sit above pre-pandemic levels 

Click here to view the report in its entirety.