With home price corrections continuing across much of the country – albeit at a slower pace nationally than seen over the prior two months – the impact on homeowner equity levels is becoming clear. Despite price corrections, home values in the nation’s 50 largest markets remain elevated by anywhere from 19% to 66% since the start of the pandemic, according to Black Knight’s 2022 Mortgage Monitor report.
The report found that $1.3 trillion (-7.6%) in recently added equity vanished from the market in Q3, the largest quarterly dollar decline on record, and the largest on a percentage basis since 2009.
Key highlights:
- Median home prices fell 0.52% in September, continuing a three-month streak of declines–but slowed at half the pace of the prior two months.
- Annualized appreciation slowed to 10.7%–still more than twice long-term norms – and, while indicative of continued correction, the 1.2% decline from August is the smallest seen in four months.
- Equity among mortgaged homes is now nearly $1.5 trillion (-8.4%) off its May 2022 peak, with the equity of the average borrower down $30K from earlier this year.
- While additional declines may be on the horizon, equity positions remain strong; at $5 trillion (46%) above pre-pandemic levels, the average mortgage holder still has more than $92K more equity than before.
- Though the number of underwater homeowners has climbed nearly 275K over the past four months–more than doubling the population–fewer than 500K homes are currently underwater nationwide.
- Nationally, 3.6% of borrowers are either underwater or have less than 10% equity, roughly half the pre-pandemic share; a historically and extremely low share (0.84%) are in negative equity positions.
Major takeaway:
“In the span of just three months, U.S. mortgage holders saw a total of $1.3T in newly acquired equity evaporate,” said Black Knight Data & Analytics President Ben Graboske. “That is–by far–the largest quarterly decline on record by dollar value and the largest since 2009 on a percentage basis. As we reported at the time, while hitting a record high in Q2, total homeowner equity peaked mid-quarter in May and has been pulling back ever since. All in, equity among mortgaged properties is now down nearly $1.5T since that point. From a risk perspective, we’ve already seen the number of underwater borrowers more than double alongside the equity pullback. That said, it’s important to note that–even with 275K falling underwater since May–fewer than half a million homeowners owe more on their homes than their current values. Historically speaking, that is still extremely low.
Graboske continued, “Also, as we’ve covered in prior Mortgage Monitors, the vast majority of homes at risk of falling underwater are those that were purchased in 2022 and late 2021, at or near pandemic-era peak prices. While these loans clearly deserve careful, ongoing monitoring, to put that into context, just 3.6% of nearly 53M U.S. mortgage holders are either underwater or have less than 10% equity in their homes–roughly half the share coming into the pandemic. While additional declines may be on the horizon, homeowner positions broadly remain strong. Overall mortgage holder equity is still $5T (+46%) above pre-pandemic levels, for an average gain of more than $92K per borrower during that period. Of course, this–along with rising interest rates – increases the potential for even further headwinds in equity lending as well as heightened default risk.”
For the full report, click here.
