The month of May shows just how unaffordable the housing market has become
Across the country, house prices have soared 42% since the pandemic started, with the average home value increasing 9% in the first few months of 2022. However, while the latest Mortgage Monitor Report from Black Knight revealed the least affordable housing market in 16 years, mortgage holders have something to collectively gain from it – $11 trillion in tappable equity, to be specific.
Ben Graboske, president of the data and analytics division of Black Knight, said tappable home equity will increase by $1.2 trillion in Q1 2022, marking another all-time high. This has left mortgage holders with an additional $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower.
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“Home price growth cooled – albeit very slightly – in April,” Graboske said. “While a downward shift from 20.4% to 19.9% annual growth is hardly cause for concern, it’s also likely we’ve not yet seen the full impact of recent rate increases. Rather, April’s decline is more likely a sign of deceleration caused by the modest rate increases in late 2021 and early 2022 when rates first began ticking upwards.”
Although the March and April rate spikes will take time to show up in repeat sales indexes, the current home prices and interest rates have already made for the worst affordability since July 2006.
The drastic price growth has also resulted in the monthly principal and interest (P&I) payment on the average-priced home, with 20% down, to rise 44% to $600 more than it was at the start of the year and 79% to $865 more than before the pandemic.
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“There’s another side to this story, though, one of significant equity growth among current homeowners. With the average-priced home up 42% in value since the start of the pandemic, current homeowners with mortgages are sitting on an average $207,000 in equity that they could choose to tap while still keeping a 20% equity buffer in place,” Graboske said. “It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own [one]. Depending upon where you stand, this could be the best or worst of all possible markets.”
Black Knight also found another key contributing factor to home prices and affordability – record-low inventories. The number of homes hitting the market remains well below what would be considered “normal” in spite of the 27,500 new homes from March to April. Overall, active listings remain 67% below pre-pandemic levels, with 820,000 fewer listings on a seasonally adjusted rate.