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Many homeowners are experiencing a decline in their wealth as the US housing market slumps, according to data compiled by mortgage analytics firm Black Knight.
The median US home price declined 0.77% from June to July, according to Black Knight’s July Mortgage Monitor report. That marked the largest month-over-month decline in home values since January 2011.
“Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities,” said Ben Graboske, president of Black Knight Data & Analytics.
Home prices have declined from their peaks in more than 85% of major real estate markets across the US, according to the report. Of the markets experiencing declines, more than 10% have seen price decreases of 4% of higher.
Homeowners in San Jose, Calif., experienced the worst on-paper losses, with average home prices down 10% over the last three months. Other prominent slumping markets included Seattle, San Francisco and San Diego.
The report found that “tappable equity” in US homes, or the amount a homeowner can borrow against their home equity while maintaining a 20% stake, likely peaked in May after hitting a record high during the second quarter.
The negative trends have developed during a recent spike in mortgage rates as the Federal Reserve tightens monetary policy. A 30-year fixed-rate mortgage had a 5.66% rate as of last week – up nearly three points compared to the same week one year earlier, according to Freddie Mac.
Tappable equity declined by 5% over the last two months, according to Black Knight, which projects that the housing market will experience its first quarterly decline in the metric since 2019 in the third quarter.
“Some of the nation’s most equity-rich markets have seen significant pullbacks, most notably among key West Coast metros,” Graboske said.
“Keep in mind that of the roughly 275K borrowers who would fall underwater from a 5% price decline, more than 80% purchased their homes in the first six months of 2022 – right at what appears to have been the top of the market,” Graboske added.
Despite the declines in home prices in tappable equity, the housing market is “on strong footing to weather a correction,” according to Black Knight. The firm noted that the average homeowner owes just 42% of their home’s value – the lowest tally on record.
CNBC was first to report on Black Knight’s findings.
The volume of mortgage applications has hovered at a multi-decade low for months and declined another 0.8% for the week ending September 2, according to the Mortgage Bankers Association. Purchase applications are down 23% compared to the same week one year ago and refinance applications are down 83% over the same period.
There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity,” said Mike Fratantoni, the MBA’s senior vice president and chief economist.
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