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Black Night Reports Least Affordable Housing Market in 16 Years

Black Knight reports the share of median income required to make that P&I payment has climbed to 33.7%, just shy of the 34.1% high reached in July 2006.
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Case-Shiller home prices via St. Louis Fed, chart by Mish

Case-Shiller home prices via St. Louis Fed, chart by Mish

Black Knight's Mortgage Monitor sheds more light on how much the Fed exacerbated the housing bubble with its unjustifiable QE program. 

  • U.S. home prices are up 42% since the start of the pandemic, with the average home having gained almost 9% in value just since the start of 2022
  • Though the annual rate of appreciation cooled slightly (19.9% in April vs. an upwardly revised 20.4% for March), rising home prices and interest rates have made for the worst affordability since July 2006
  • The monthly principal and interest (P&I) payment on the average-priced home with 20% down is nearly $600 (+44%) more than it was at the start of the year and $865 (+79%) more than before the pandemic
  • As of May 19, with 30-year mortgage rates at 5.25%, the share of median income required to make that P&I payment had climbed to 33.7%, just shy of the 34.1% high reached in July 2006
  • While tightening affordability is hampering prospective homebuyers, the home price growth at the root of the issue continues to increase the housing wealth of current homeowners with mortgages
  • U.S. mortgage holders saw their collective tappable equity – the amount available to borrow against while retaining at least a 20% equity stake in the home – increase by $1.2 trillion in Q1 2022 alone
  • In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower

Tappable Equity Trap

American mortgage holders have more than $11 trillion in tappable equity, also a history-making total. 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. Depending upon where you stand, this could be the best or worst of all possible markets.”

Tappable equity to buy what? And for how long? 

The equity is tappable to support current consumption, of course. But at what interest rate?

Much of that tappable equity is a mirage. The rest has strings attached. After paying down debt, tapping equity increases leverage. 

Housing provides a "feel good" wealth effect, just like the stock market. But the stock market feed good setup has ended or is about to. 

Homes are the most expensive since 2006. Then what happened? 

This time, the sinking wealth impact from housing is likely to be a slower bleed. 

Home Prices Disconnect From Rent and OER

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CS National Top 10 Metro CPI OER INDEX 2022-03

Home Prices Have Peaked

Home prices have peaked. Big discounts are happening already and the sales data is very weak. Here are some discussion points.

Due to the lagging nature of Case-Shiller home price measurements, it may be a few months before the index peaks.

For discussion, please see Case-Shiller Home Prices Reach New Record High, But This is Rear View Mirror Look

Bubbles burst by definition and this one was a doozie. At a bare minimum, look for prices to return to the pre-pandemic level. 

This post originated on MishTalk.Com.

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