Tightening credit availability is adding to affordability struggles as rates remain elevated, inventory shortages worsen and home prices strengthen, according to a new report from Black Knight.
Black Knight’s monthly Mortgage Monitor report uses the company’s mortgage, real estate and public records data sets to observe industry trends. April’s report looked at the intersection of affordability, inventory, demand and credit availability.
Key highlights:
- With 30-year rates rising again in May, each of the 100 largest U.S. markets is once again less affordable than its own long-term average.
- Nationally, it now takes 34.2% of the median household income to make principal and interest (P&I) payments on the median-priced home purchased with 20% down using a 30-year fixed-rate mortgage.
- According to Optimal Blue rate lock data from Black Knight, after pulling within 15% of pre-pandemic levels on rate dips earlier this year, in recent weeks purchase activity fell back to a 34% deficit on shrinking demand.
- Likewise, rising borrower credit scores and down payments among recent rate locks point to the tightening of credit availability compounding the challenges facing potential homebuyers.
- Black Knight Collateral Analytics data showed home sales volumes fell in April, as a lack of both affordability and inventory continue to create major market headwinds.
- Having worsened in eight of the past nine months on a seasonally adjusted basis, for-sale inventory is now at its lowest level since April 2022, with inventory deteriorating in 95% of major markets since the start of 2023.
- This continues to put upward pressure on home prices this spring, with April marking the fourth consecutive monthly increase on a seasonally adjusted basis.
- April’s seasonally adjusted +0.46% increase was roughly on par with the 30-year average of +0.48% for the month, and would equate to a 5.5% annualized growth rate if sustained for a 12-month period.
- Despite prices firming, annual growth slipped to 0.0% in April—marking the first time home prices have been flat year over year since the market began to recover in the wake of the Great Financial Crisis.
- Price strengthening this spring has erased more than 60% of the declines seen late last year at the national level, and at the current rate of growth would fully erase those corrections by mid-2023.
Major takeaway:
“In a sense, the gridlocked housing market has been feeding on itself,” said Black Knight Vice President of Enterprise Research Andy Walden. “While elevated interest rates continue to weigh on both affordability and demand, they’re simultaneously constricting supply as well as would-be sellers who locked in ultra-low rates early in the pandemic and continue to sit on the sidelines. “
“The combination of lower supply and demand in April led to both slowing sales and firming prices. In fact, while home sales dipped, April marked the fourth consecutive month of home price gains, which are now almost universally rising across the country again on a seasonally adjusted basis,” Walden continued. “Only Austin, Texas—the sole market where inventory is back above pre-pandemic levels—is still seeing meaningful price corrections continuing into the spring. In today’s market, interest rates are acting as a double-edged sword, reducing or increasing both demand and supply as they rise and fall, making it challenging to find a rate-driven path to easing affordability and home prices.”
“Amidst all of this, we’re also beginning to see clear signs of tightening credit availability. Our Optimal Blue rate lock data shows that average credit scores and down payments are on the rise, with tightening credit compounding the significant challenges already facing potential home buyers and the origination market alike,” added Walden.
Walden concluded, “According to our McDash loan-level mortgage performance dataset, April purchase credit scores were the highest on record, dating back to 2000, when Black Knight first started tracking the metric. Pullbacks in purchase rate lock volumes have continued, dropping 11% from the week ending March 25 to the week ending May 20, in what would typically be the heart of the homebuying season. Indeed, purchase locks have fallen back down to more than 30% below pre-pandemic levels, after pulling to within 15% on rate dips in mid-January and mid-March. Demand is obviously suffering, and the fact that this spring’s strengthening home prices have erased more than 60% of the ‘correction’ seen late last year isn’t likely to help much on that front.”
For the full report, with additional data on housing market trends at the geographical level, click here.
