A home is awaiting sale at a reduced asking price in Glendale, California.
David McNew | Getty Images
The historic rise in house prices in the first two years of the pandemic gave homeowners record amounts of new homes.
But about $1.5 trillion of that has disappeared since May, according to Black Knight, a mortgage software and analytics company. The average borrower has lost $30,000 in equity.
Collective homeowner equity hit a peak of $17.6 trillion last May after home prices rose 45% since the pandemic began.
At the end of September, prices were still up 41% and stock prices were still pretty strong. Borrowers who bought their homes before the pandemic collectively have $5 trillion more than they did before the pandemic. That means a gain of $92,000 more in equity per borrower than in February 2020.
“Even with more declines on the horizon, homeowner positions remain broadly strong,” noted Ben Graboske, President of Data and Analytics at Black Knight.
But home prices began to weaken as mortgage rates rose in the spring, making buying much less affordable. The monthly payment for the average home with a 20% down payment on a mortgage is up nearly $1,000 year-to-date.
In 10% of major markets — including Las Vegas, Miami, Los Angeles, Phoenix, Tampa, and San Diego — homeowners have to spend twice the long-term average of median household income to meet their monthly payments.
Because of this, home sales began to plummet as early as May – and prices have followed suit.
Home prices fell month-on-month in September for the third straight month, although the decline was not as sharp as in July and August. While prices typically fall from summer to fall due to the seasonal slowdown, in 2022 they have fallen much more than usual.
Prices are now down 2.6% since late June, the first three-month decline since late 2018 and the steepest such decline since the financial crisis in early 2009. Since July, the median home price has fallen by $11,560. However, prices are still 10.7% higher than in September 2021.
Since the end of September, the amount of collective equity available to borrowers while still holding 20% equity in their home has fallen by $1.17 trillion since May. That’s the first drop in so-called vulnerable equity in three years.
The proportion of borrowers who owe more on their mortgage than their home is worth is still quite small at just 0.85%. But the numbers are starting to rise.
Fewer than 500,000 borrowers are currently under water with their mortgages, but that’s still double the number in May. Those who bought their homes in the past year are most at risk of going under water, having bought at the peak of the market.
“Obviously this is a situation that requires careful and ongoing monitoring, but to put this in context, only 3.6% of nearly 53 million U.S. mortgageholders are either underwater or have less than 10% equity in their homes.” , about half of the share that comes into the market pandemic,” said Graboske.