Even as the U.S. housing market keeps cooling, soaring home prices continue to create a divergent environment for current homeowners and prospective buyers, with tappable equity setting yet another record while affordability continues to recede, according to the latest Mortgage Monitor report from Black Knight.
Per the analytics company’s data, all of the nation’s top 100 metros registered double-digit yearly price growth for the third straight month in April. Nationally, home prices were up 19.9% year over year, with the average home gaining 8.7% in value since the beginning of 2022.
The ongoing price gains have “thus far created a very difficult environment for prospective homebuyers to navigate,” Black Knight president Ben Graboske said. The monthly principal and interest (P&I) payment for the average U.S. home purchase has risen by almost $600 (or 44%) since the start of the year and by $865 (79%) since the onset of the COVID-19 pandemic.
As of May 19, it took $1,958 — roughly 33.7% of the national median household income — to cover the typical P&I payment. Consider that, before the COVID-19 crisis, the prior monthly P&I peak was about $1,360 in 2006.
“Factoring in current income levels, housing is now within a whisper of the record-low affordability seen at the peak of the market in 2006,” Graboske said. According to Black Knight, either a 10-basis-point increase in rates or a 1.1% increase in home prices from the levels seen on May 19 would push affordability to its worst level on record.
“There’s another side to this story, though,” Graboske added. “One of significant equity growth among current homeowners.”
In first-quarter 2022, U.S. homeowners with mortgages gained a collective $1.2 trillion in tappable equity, defined by Black Knight as the amount available for mortgage holders to borrow against while retaining a 20% equity stake in their homes. That’s the largest quarterly jump on record, giving mortgage holders more than $11 trillion in tappable equity, also a record high. An average mortgage holder now has $207,000 in equity.
“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 and have seen their housing wealth rise substantially over the last couple of years,” Graboske said.
“Depending upon where you stand, this could be the best or worst of all possible markets.”
Of course, with rates on the uptick and price growth softening, things can change. Most experts, however, don’t expect prices to decline anytime soon.
“While a downward shift from 20.4% (in March) 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,” Graboske said. “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 upward. The March and April 2022 rate spikes will take time to show up in repeat sales indexes.”