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Black Knight’s October 2022 Mortgage Monitor

8% of 2022 Mortgaged Home Purchases Now Underwater; FHA Loans See Early-Payment Defaults Rise

Black Knight’s October 2022 Mortgage Monitor
  • 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

JACKSONVILLE, Fla. – Dec. 5, 2022 – Today, the Data & Analytics division of Black Knight, Inc. (NYSE:BKI) released its latest Mortgage Monitor Report, based on the company’s industry-leading mortgage, real estate and public records datasets. Despite home price corrections continuing in many markets nationwide driven by tight affordability and higher rates, the pace of price declines has slowed measurably over the past two months. As Black Knight Data & Analytics President Ben Graboske explains, 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.

“Though the home price correction has slowed, it has still exposed a meaningful pocket of equity risk. Make no mistake: negative equity rates continue to run far below historical averages, but a clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic. Risk among earlier purchases is essentially nonexistent given the large equity cushions these mortgage holders are sitting on. More recent homebuyers don’t fare as well. Of the 450K underwater borrowers at the end of Q3, the mortgages of nearly 60% had been originated in the first nine months of 2022 – and these were overwhelmingly purchase loans. All in, 8% of purchase mortgages originated thus far in 2022 are now marginally underwater, with another 20% in low equity positions. Among FHA purchase mortgage holders specifically, more than 25% have slipped underwater and more than three-quarters have less than 10% equity. This is an illustrative and, unfortunately, potentially vulnerable cohort that we will continue to keep a close eye on in the months ahead.”

Digging deeper into the month’s data, Black Knight found that, while still relatively low among conforming loans, the early-payment default (EPD) rate – which captures mortgages that have become delinquent within six months of origination –– has risen among FHA loans for much of the past year to reach its highest level since 2009, excluding the months in the immediate wake of the pandemic. 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. Given the questions surrounding slowing price gains and corrections around the country, along with rising EPDs among FHA loans, Black Knight will continue to monitor such equity positions closely.

Much more information on these and other topics can be found in this month’s Mortgage Monitor.

About the Mortgage Monitor

The Data & Analytics division of Black Knight manages the nation’s leading repository of loan-level residential mortgage data and performance information covering the majority of the overall market, including tens of millions of loans across the spectrum of credit products and more than 160 million historical records. The combined insight of the Black Knight HPI and Collateral Analytics’ home price and real estate data provides one of the most complete, accurate and timely measures of home prices available, covering 95% of U.S. residential properties down to the ZIP-code level. In addition, the company maintains one of the most robust public property records databases available, covering 99.9% of the U.S. population and households from more than 3,100 counties.

Black Knight’s research experts carefully analyze this data to produce a summary supplemented by dozens of charts and graphs that reflect trend and point-in-time observations for the monthly Mortgage Monitor Report. To review the full report, visit: https://www.blackknightinc.com/data-reports

About Black Knight

Black Knight, Inc. (NYSE:BKI) is an award-winning software, data and analytics company that drives innovation in the mortgage lending and servicing and real estate industries, as well as the capital and secondary markets. Businesses leverage our robust, integrated solutions across the entire homeownership life cycle to help retain existing customers, gain new customers, mitigate risk and operate more effectively.

Our clients rely on our proven, comprehensive, scalable products and our unwavering commitment to delivering superior client support to achieve their strategic goals and better serving their customers. For more information on Black Knight, please visit www.blackknightinc.com.

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